General Electric got bailed out by American taxpayers.
Specifically, it was given $139 billion in FDIC guarantees and support by the Federal Reserve for it’s commercial paper (see this).
So you’d think that GE would return the favor by paying American taxes, right?
Wrong. GE paid no U.S. taxes for 2009.
As CNN points out:
GE had plenty of earnings last year — just not in the United States. For tax purposes, the company’s U.S. operations lost $408 million, while its international businesses netted a $10.8 billion profit.
Unfortunately, GE is not alone.
As I wrote in November:
The Washington Post notes:
About two-thirds of corporations operating in the United States did not pay taxes annually from 1998 to 2005, according to a new report scheduled to be made public today from the U.S. Government Accountability Office…
In 2005, about 28 percent of large corporations paid no taxes…
Dorgan and Sen. Carl M. Levin (D-Mich.) requested the report out of concern that some corporations were using “transfer pricing” to reduce their tax bills. The practice allows multi-national companies to transfer goods and assets between internal divisions so they can record income in a jurisdiction with low tax rates…
[Senator] Levin said: “This report makes clear that too many corporations are using tax trickery to send their profits overseas and avoid paying their fair share in the United States.”
Indeed, as Pulitzer prize winning journalist David Cay Johnston documents, American multinationals pay much less in taxes than they should because they use a widespread variety of tax-avoidance scams and schemes, including:
- Selling valuable assets of the American companies to foreign subsidiaries based in tax havens for next to nothing, so that those valuable assets can be taxed at much lower foreign rates
- Pretending that costs were spent in the United States, so that the companies can count them as costs or deductions in the U.S. and pay less taxes to the American government
- Booking profits as if they occurred in the subsidiary’s tax haven countries, so that taxes paid on profits are at the much lower safe haven rate
- Working out sweetheart deals with certain foreign governments, so that the companies can pretend they paid more in foreign taxes than they actually did, to obtain higher U.S. tax credits than are warranted
- Pretending they are headquartered in tax havens like Bermuda, the Cayman Islands or Panama, so that they can enjoy all of the benefits of actually being based in America (including the use of American law and the court system, listing on the Dow, etc.), with the tax benefits associated with having a principal address in a sunny tax haven.
- And myriad other scams
As Johnston documents, the American economy is hurt by the massive underpayment of taxes by the huge multinationals.
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GE, the national debt, deficit spending and the TEABAGGERS: making sense of it all!
This is exactly why the national debt and deficit spending are sooooo colossal!
Debt-financed billionaires shovel their debt onto the public, and the same group, which profits from the death profiteering and war profiteering from GE (which to repeat, received bailout funds or would have gone under), then turn around and PAY ZERO in taxes!
Thus shrinking the tax base by peddling debt, offshoring jobs, and paying no taxes.
So who does pay the taxes????
Contrary to all their foundation-sponsored, and “think tank” sponsored propaganda, the little people do.
That’s who.
Profit shifting, transfer pricing, offshore tax havens, sheltering profits offshore, off-balance-sheet hiding of both debt AND capital.
Thanks to Marshall Langer, architect of those offshore tax havens, and promoter of Americans for Prosperity (who, in turn, promote those godawfully stupid teabagger lowbrows).
I gather with little people you mean the middle class, since poor people don’t pay taxes either, because they have no money. That is so far. That will change once a VAT is introduced, both the middle class and the poor will end up paying more.
It is the age old game: Capitalist accumulate wealth pushing everyone else down into poverty.
The poor people pay with their labor. They live barely a subsistence living. The value of their labor is extracted from them. This is really true of anyone below upper middle class.
Duh. That’s because they don’t have any “talent.” Haven’t you heard how the world works? This is what you’d learn at Efficiency School, where I earned a Masters Degree in Efficiency. I’m an expert, and very efficient at everything I do. – Mr. Blovius Paradigm, MBA
We can’t tax corporations, because they employ all the workers. We can’t tax the rich, because they create all the jobs by spending money. We can’t tax the middle class (the remnant that’s left) because they’ve gotta work for a living. We can’t cut goverment expenditures, because that would cut out the profits of big Pharma and the military industrial complex. I’m afraid our only option now is to tax the poor. Yeah, that sounds like a viable option. What say we start at 100% and work our way up? And while we’re at it, let’s disband the entire public education system and shave about 0.9% off the goverment budget!
/sarc
Well, I promise to pay at least $1 in taxes next year if you give me $139 billion in zero interest rate loans.
Heck, just give me one week of printing up nice clean tens and twentys at the US Mint (or where ever), and I promise to hand out ten percent in brown paper bags to members of Congress.
As stupid as the above suggestions sound, do people realize that our current economic policy of handing out money to failed companies is probably more expensive and damaging to our national economy?
Can we get a real economics professional to do the study? Randomly handing out a couple billion in tens and twentys probably has better long term economic benefits than propping up failed companies to the tune of ten trillion bucks. Heck, take one trillion, and evenly distribute it to every taxpayer in the US. Ninety percent of it would be spent and the US would collect taxes on 25% of that. That’s a lot better way to stimulate the economy.
You do realize that the government didnt lend the money to GE as you claim when you say “if you give me $139 billion in zero interest rate loans.” GE raised it in the capital markets. Yes – they had a guarantee by the FDIC which allowed them to raise it cheaper than they otherwise would have. They also paid a fee on an annual basis to the FDIC for guaranteeing this debt (yes – no one mentions this ever). Yes – I know the fee for guaranteeing it was less than where their CDS were trading at the time so it was subsidized from the standpoint that the FDIC was not compensated fully for the risk they were taking in guaranteeing them.
Well, if government guarantees are behind it, then it is immaterial who actually disbursed the money to GE: The government would have to backstop it in any case if it were not repaid. It is thus a technecality whether the government actually loaned the money itself or not.
Apart from this, the FDIC was putting its funds at stake with this exercise. Funds that were meant to protect savings accouns were misused to bail out a private entity.
GE Capital was also over-exposed to so-called “toxic mortgage-backed securities”. I imagine if we opened up the Fed’s books we’d find quite a bit of mortgage-backed securities (probably commercial real estate) from GE Capital. Now that is a direct government aid program, since the market for those securities was literally dead until the Fed arrived (and probably still is dead, but we won’t know until their purchase program ends).
What we do know is that a panicked call from Jeffrey Immelt was one of the reasons Hank Paulson decided to bend over backwards to get GE Capital recognized as deposit institution so that it could receive these FDIC guarantees. They were in trouble, and without Gov help I doubt we’d have a GE at this point.
Don’t forget other ways that corporations save money:
===============
Microsoft is not the only company that depends on child labor for increased profits, companies like Apple and HP and many others follow the same practices.
—————
Microsoft Supplier Uses Child Workers And Pays Them $0.65 Per Hour
http://www.businessinsider.com/microsoft-slammed-over-child-labor-accusations-2010-4
Microsoft Opens Probe after China Factory Report
Labor group says workers at KYE Systems Corp. factory have no rights as ‘every single labor law in China is being violated.’
http://www.industryweek.com/articles/microsoft_opens_probe_after_china_factory_report_21597.aspx
They all do. The book No Logo from Naomi Klein does give some inside in how corporations work and outsource the jobs to low wage countries.
With all due respect to the author, it’s not a scam – it’s legal method to avoid taxes, incorporated into the tax code by an act of Congress. Whether or not it makes sense for the country as a whole is a worthwhile debate, but if you are a shareholder or an employee of GE, wouldn’t you want the management to pursue every legal means available to minimize the company’s tax liability?
It’s analogous to arguing that homeowners shouldn’t take the legal mortgage deduction when filing their personal income taxes, because the federal government and the Federal Reserve rescued the housing market from a far worse disaster. I think most all homeowners would disagree that they ‘owe’ the Feds.
“With all due respect to the author, it’s not a scam – it’s legal method to avoid taxes…”
That makes it a legal scam…
OK..and deducting mortgage interest from your taxable income is a legal scam to take money away from those in the country who dont pay mortgage interest (since essentially tax rates have to be higher in general to replace the taxes lost due to the deductions taken)
By that argument, I agree. Yes they are both legal scams then.
Actually, if you look at David Cay Johnston’s list, he’s making the case that companies are falsely claiming they are entitled to pay no taxes on income that they actually do. The fact that certain tax breaks are available does not mean that you are entitled to them.
To answer your question, then, if a company has to engage in fraud or another criminal act to minimize its tax liability, then no, I do not want them to do so.
I agree – fraud should be punished to the extent that the law allows. While I’m certainly not a expert on accounting, I know that managers have discretion as to how to allocate revenues and expenses, and there are some gray areas in the generally-accepted accounting principles that could materially benefit a company, depending upon how they allocate these line items. GE is simply minimizing its tax liability the best way it can. It’s up to the Justice Department or the SEC (I’m unsure which) to determine if they are avoiding taxation (which is legal) or evading taxation (which is not legal).
As several other posts indicate, there is a ethical dimension to this issue, which I describe as: has GE an ethical obligation to pay tax in the US that it has no legal obligation to pay, but that it should, because of the indirect financial benefit the company received from taxpayers? I won’t argue about what is the ethically proper decision, but I believe that if one is unhappy about the (presumably legal) means that GE avoided paying tax in the US, the real fault lies with Congress, for they are the ones who created the current tax code that permits this behavior by GE.
Not that long ago, individuals could write checks to congress critters right *up to* the vote in Texas, until one individual did so in chambers, now all are exiled to lobby.
Skippy…care to rethink you comment?
PS. kinda the same in DC.
Great summary…this message summarizes the whole thing perfectly.
I think the question is if all earnings are abroad and not in the US, how does the shareholder in the US profit?
There is a problem with accounting rules and taxes here that is not easily explained and in my view doesn’t make sense.
The price of the stock should go up if the earnings are higher regardless of where the profit comes from. Thats how the shareholder profits.
Yes, exactly. They need to consolidate books at the HQ which is in the US. So they should be required to pay taxes in the US even if the profits were made abroad. They may be allowed to make some deductions for taxes already paid to foreign governments though – but only if a bilateral agreement exists.
If they don’t pay anything at all then there is something wrong with the US tax code.
Is it just the weekend, or should I be glad that people aren’t miffed that President Obama didn’t promise to throw magic dust at all of America’s problems and solve them in 18 months like we thought he would? Let’s see, how about major tax reform, right after his finance reform bill is signed into law. Then, pollution, mine safety, and no more deficits. And if he can’t deliver, let’s turn are backs on the whole mess and make our fortune in China, or India or where ever the food is better. I want to cut the military industrial complex down to size. Anybody want to help?
I’d love to help -but spare me the China food and poisoned metal utensils please.
I guess I’m a little slow to see what’s going on with Goldman and tax evasion and Obama … I finally get it. I just read this about impacts from the Health Bill.
http://www.spokesman.com/stories/2010/mar/28/health-laws-heavy-impact/
The Goldman Dog & Pony Show is all about putting some pressure on the Republican strategy to run in November against this Obama health fiasco. Don’t get me wrong, I hate politics, have never read a thing about “the bill” and think that healthcare should be more socialized — but the only way Obama will be able to pull of the health care agenda is to use the power of his office to crush wall street and make corporations like GE and Goldman play fair — but I think this is just a short term illusion and Goldman and friends will cash in on this chaos, as we the taxpayers get totally screwed! Vote Independent and get rid of all Democrats and Republicans this November!
Once again corporatism strikes. It literally pays to be well-connected in Washington.
To GE’s defense, they WILL pay taxes if and when they repatriate this money, but when using substandard conditions and “hiring” slave labor abroad, why would they ever do such a crazy thing as reinvest in America?
With all of Buffett’s blabbering about “winning the birth lottery” he’s really got a lot of egg on his face.
Meanwhile our current account bleeds billions out of the country’s financial life blood every month and as the economy “strengthens” it only gets worse.
Boycott GE products and those businesses that use them.
@Blurtman
Yeah!And dont forget to boycott Windows, Ipad and iphone..
Corporations play games with their allocation of costs, so let’s just ignore their costs and tax their revenues.
If you sell it here you should pay taxes on it here.
This is just more evidence that Wall Street has become so disconnected from Main Street that it’s no longer true that profits on Wall Street translates into profits on Main Street. In fact, this disconnect between Wall Street and Main Street has become so severe that it’s turning America into a land of plutocrats and plebs with nothing in between. So if this news about one of our top welfare queens on Wall Street not paying a single dime in US taxes doesn’t get us plebs on Main Street all fired up for class warfare, I don’t know what will.
So in order to reconnect Wall Street with Main Street, we must stop allowing corporations, who pay next-to-nothing in taxes, to have unfettered power and influence in Washington. To make corporations more beholden to the American economy and less to the global economy, we must mandate into law that the less corporations pay in taxes, the less power and influence they can have in Washington. But this won’t help restore Main Street to its reform glory unless we tax the hell out of corporations for moving their operations beyond our borders. These actions will also help neutralize the Supreme Court’s recent decision to give corporations even more freedom to use their vast amounts of wealth to exert even more power and influence in Washington. But none of these actions will do a thing for us plebs on Main Street as long as the plutocrats on Wall Street own most of the mainstream-media outlets and all three branches of government. This is why we the plebs must declare war on the plutocrats and we must do it before they drive us all into servitude!
It is in the interest of any entity (corporate or individual) to minimize its losses and expenses. The complexity of the tax code works in favor of those who have the resources to navigate it. GE just excels at the game.
Now Germany May Go After Goldman Sachs For Duping One Of Its Banks
Business Insider | Apr. 17, 2010, 4:05 PM
here
this goes to my point of view that Goldman Sachs and other of their ilk committed crimes against humanity by accepting hundreds of $millions in fees from government finance authorities like Greece to create financial instruments intentionally to defraud working people all over the world. Goldman Sachs is said to have earned $300,000,000 for themselves on those deals in Greece alone.
Recall the pictures of elderly Japanese anguished over the Lehman failure that took their retirement funds down with them.
Funny how there is no actual insight on proving that GE made profits in the US. Given there exposure in GE Capital unit in the US, it is not improbably that GE lost money in the US last year.
I have no idea whether they did but I also didnt write a conspiracy post about how they paid no taxes with ZERO FACTS to back up that they had a profit in the US and should have paid taxes
Funny how pearlw has no insight on how US taxes operate for working people. If I work on projects all over the world and get paid in foreign countries, I as a US resident am required to pay taxes on all those earnings. Worse still, as a US citizen (and US is one of only countries that work this way) if I reside overseas I still have to pay US taxes (with an exemption on part of those earnings). The Supreme Court ruled corps are citizens and get free speech rights. Well then they should share the obligations of the rest of us plebes. Of course the rest of us plebes can’t afford to buy lawmakers to make our tax evasions legal, so yea maybe what corporatios do is legal, but that doesn’t make it less immoral and ugly.
Oh, somehow I kind of doubt tha t GE’s hard working people down in the Cayman Islands are the source of all their profits….
My point is that I have absolutely no idea whether they did anything wrong and actually owed money to US government. Unfortunately the article and comments had no insight to actually enlighten me whether it was the case that they did owe taxes to US.
I recall back in the ’90’s Jack Welch crowing about GE’s appliance business-and how it would make more money off of China as IT grew than it had in all of its history in the US.
Fast forward: last year Immelt offshored the production of the plant in Louisville, KY (the one Welch referred to back in the Pleistocene). Why? Mega losses in the subprime finance business.
As I recall, corporations were a late 18th C innovation for imbuing government charters with (some) of the rights of people. Today: they avoid death (eg, TBTF) AND taxes! (eg, Cayman Islands/Bahamas, etc incorporation)
Like Goldman re fraud, GE re tax evasion is the proverbial tip of the iceberg. Let’s hope the attention paid to one does not obscure the other because the latter is every bit as important as the former.
The US is a bit like Greece; part of the problem being the ease with which high net worth companies and individuals avoid their fair share of tax and enjoy the resulting free ride, even while their country burns down around them.
If there’s enough sunshine from these GE revelations to act as a disinfectant, it couldn’t happen to a more worthy company, one which profits from the war crimes of Israel, among others.
‘About two-thirds of corporations operating in the United States did not pay taxes annually from 1998 to 2005, according to a new report scheduled to be made public today from the U.S. Government Accountability Office…’
I suppose a clawback from those companies would be a Bad Thing because it might bankrupt them, which would retrench more workers, lower demand, etc etc. Most of them individually are not TBTF but collectively they could bring the house of cards down again, right… isn’t that the sort of argument we’d get?
‘We can’t tax corporations, because they employ all the workers. We can’t tax the rich, because they create all the jobs by spending money…’
Precisely.
One thing that has been bothering me lately is the gusto with which Mish Shedlock among others has been laying into the entitlements of government employees, comparing the apparent largesse of their pension and health funds to the seemingly more responsible private sector. He seems to think much of the current malaise can be traced to what he sees as rampant greed of unionised government labour.
A few things. First, obviously there are what we in Australia call ‘rorts’ – situations engineered by groups of people with access to decision-making powers (or to people with such powers) to feather their own nests. Health and dental care for life, retiring at 55 on full salary til death – utterly without justification, I agree fully. (Though the gulf between public and private benefits, while it may demonstrate the excesses of one, might also serve to show how inadequate and even miserly is the other)
But calling for unions to just get out of the way as new brooms like Gov Christie try to gut contracts for employee pension funds, while at the same time calling for corporate taxes to be abolished altogether as Mish does seems to me to evince the same sort of corporations good/unions bad, laissez-faire, ‘privatise-the-gains, socialise-the-losses’ mentality that has helped lead us to this point and which helped permit the rise of the behaviours of the GSs and GEs.
For one thing, Shedlock talks of tax relief for companies as a boon for employment as firms would find it easier to hire – but surely that’s got it ass-backwards. For companies to hire, people need to be buying and if govt employees (which are what, 40% plus of US employees?) take the hit Mish wants, where will the demand that would encourage hiring come from?
Mish would probably bemoan the fact that govt people are such a high % (do the figures include the military I wonder) – but this has happened because of the hollowing out of US industry via offshoring and international wage arbitrage.
And I wonder if registered investment advisers like Mish have over the years recommended to their clients that they invest in some of the companies who made their returns attractive to investors because of such offshoring, thereby making the Mishes of this world in a real sense a part of the problem. Perhaps even as important a part of the problem as greedy unions.
I further wonder if some of the companies so recommended by investment advisors over the years were also attractive because of the fact that they managed to avoid their proper share of tax.
How ironic would it be if Mish and the austerity-hawks got their way and unionised employees had their contracts voided on account of the economy, losing so much purchasing power that the fragile conssumer recovery took a nosedive?
It would be even more ironic if tax relief for American firms did somehow encourage hiring – in China.
Kinda like the US has turned a nation into a corporate store or we are fighting the same battles others did aka the Battle of Matewan.
Skippy…all toil returns to the store or .001% that run it…eh.
Nice post Glenn.
We need a Progressive Tea Pary
The post starts out bold enough concerning GE, but then clearly dives off into generalities. Give us some meat: which of these techniques did GE employ, and how much US tax was illegally avoided? Based on this post, the reader can’t identify one cent of any specific US tax due by GE that wasn’t paid. Dig deeper, please.
Contrary to the bias of this article… no business taxes are a very good thing. People ignore the Singapore model(what other country has exhibited 32% gdp growth last quarter?) which depended heavily on at a minimum of not charging businesses 1 dime in taxes for 15 years; I think the moritoriums were extended afterword correct me if I’m wrong…). The Singapore model of a flat 50% wage tax plus no business taxes along with “social” policies of public housing, education, healthcare etc kicked off an economic miracle that most choose to ignore and look the other way. I can find no other example combining both left and right political aims that actually ended in dramatic success. Flat out the assumption that companies paying no taxes is evil is wrong… charging businesses that provide the jobs that ultimately feed the people is what is evil… learn from Singapore or be doomed to failure… Note the flat wage tax has fallen since the start to about 27%… you can still opt to buy your own house etc but public housing, education, and healthcare are still provided and darn good. I should also point out that there is little crime, a clean environment, and they are ethnically diverse…Given the evidence Singapore provides of a real working economy, we should no longer see trash opnions like this presented without laughing it out of the house.
To help GE maintain their loss status in the US, I will refrain from buying any of their products. When did it become patriotic to stop paying taxes?
Our government is prosecuting Private Banking Clients globally for hiding their assets in the same ways.
Why is there no parity in prosecutions for US corporations?
Dumb question, I know.
The proportion of lost corporate tax revenue absolutely DWARFS that of individuals. Yet, our municipalities, teachers, doctors, and taxpayers generally get to make up the difference.
Another example of how our democracy has become the plaything of moneyed interests.