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All Da King's Men

Learning From GE

By Da King Published: April 3, 2011

The New York Times recently noted that General Electric (GE), the largest corporation in America and second largest in the world, according to Forbes, made a boatload of tax-free money in 2010:

[GE] 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.

No taxes on over $5 billion in profits ? How can this be ? Here's how:

...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.

GE tries to minimize it's tax burden. So does almost everyone else, including all you who are reading this. Almost nobody tries to pay more taxes than they absolutely must, not even the rabid left-wingers and socialists who constantly call for tax increases. They also pay as little as they can. Paying more goes against one's own self-interest, so people won't do it.

As readers of this blog know, I advocate lowering (or eliminating) America's 35% corporate tax rate due to it's counterproductive economic effects. That 35% rate will soon be the highest corporate tax rate of any country in the world, after Japan implements plans to lower it's rates. Our tax rates put us at a competitive disadvantage in the global marketplace. The fact that GE engages in elaborate accounting maneuvers to "concentrate it's profits offshore" proves the point. Maybe some of you still tend to think of GE as the American company that makes appliances, but the appliance manufacturing business is but a small part of GE today. GE is a worldwide multinational conglomerate that employs 287,000 people and makes about half it's profits from financial services. One of GE's subsidiaries is NBC, meaning that all those corporate-bashing, left-wing talking heads over at MSNBC are being paid by the largest corporation in the country. To put it another way, those pseudo-lefties are all happily working for The Man. To me, that is some funny stuff. 'Watch the Che Guevara Show at 9pm Eastern, sponsored by Exxon and Fukushima'. Truth really is stranger than fictiion. Btw, several reactors at the Fukushima nuclear power plant in Japan were designed by...General Electric.

'...welcome to MSNBC. And now back to Rachel Maddow for a report on how evil soulless corporations are destroying the environment, after which Rachel will go to the bank to deposit her big fat paycheck from an evil soulless corporation that is destroying the environment'. Ka-ching.

But I digress. Getting back to corporate tax rates, it's clear that GE's taxes aren't that high (less than zero is really low. I have never advocated negative taxes, aka subsidies), in spite of our high corporate tax rates, but that's because GE jumps through all kinds of hoops to avoid paying them. GE moves it's profits offshore and hires an army of former government bureaucrats who know the ins and outs of our ridiculous tax code to figure out ways around it. For GE, the costs associated with all these business moves are less than the gain.

I want to point out here that GE has about as much in common with the millions of corporate tax filers in America as I do with, well, GE. Literally. Some years ago I ran a corporation that was in reality a small company consisting of myself and my wife. I was the CEO of that company, but President Clinton never appointed me as his financial advisor on jobs, as Obama did with GE's Jeff Immelt. That was clearly Clinton's loss. I don't hold it against him. I was probably snubbed because I didn't go to Harvard, or as I like to call it, Golden Ticket University. That was probably the reason, though I can't be certain :) I just want to show that there can be light years of difference between one corporation and another, but they are all pretty much subject to the same tax rates, whether it be my little company or GE. In fact, my little company paid a higher effective corporate tax rate than GE is paying now, and needless to say, I wasn't making billions in profit. Damn, I wish I HAD gone to Golden Ticket University. Just look what it did for that skinny black druggie kid from Hawaii. Oh, well. C'est la vie.

Anyway, when I advocate for lower business taxes, I'm not really thinking of corporate behemouth's like GE, though the same principle does apply to them. I'm thinking of the millions of small business entrepreneurs struggling to build good lives for themselves and their families, entrepreneurs who provide jobs for people so other Americans can also have good lives. Business is where America's wealth comes from, and I'm sick of seeing government bureaucrats throwing up unnecessary financial roadblocks to success.

This leads me to another observation. When the New York Times says GE doesn't pay taxes, that is actually not true, because those 287,000 people employed by GE all pay taxes individually, and GE pays their wages. Therefore, all the taxes paid by those 287,000 are in reality coming directly from GE. In addition, all the dividends and capital gains reaped by GE's shareholders are also taxed. And I can't even begin to estimate all the taxes paid by the ancillary jobs GE creates. When a repairman comes to your house to fix your GE refrigerator, GE made his job possible too, just like IBM and Microsoft made my computer jobs possible. I repeat, business is where our wealth comes from. Not from the government. This is a first principle.

What the government does wield is power, which is why we have an absurd 67,000 page IRS tax code filled with loopholes, credits, and more convoluted bs than you could ever imagine. That's why GE hires an army of people to file it's 24,000 page tax return, and that's why GE also hires an army of lobbyists to gain tax advantage on Capitol Hill:

The [tax] shelters are so crucial to G.E.’s bottom line that when Congress threatened to let the most lucrative one expire in 2008, the company came out in full force. G.E. officials worked with dozens of financial companies to send letters to Congress and hired a bevy of outside lobbyists.

The head of its tax team, Mr. Samuels, met with Representative Charles B. Rangel, then chairman of the Ways and Means Committee, which would decide the fate of the tax break...That day, Mr. Rangel reversed his opposition to the tax break, according to other Democrats on the committee.

The following month, Mr. Rangel and Mr. Immelt stood together at St. Nicholas Park in Harlem as G.E. announced that its foundation had awarded $30 million to New York City schools, including $11 million to benefit various schools in Mr. Rangel’s district. Joel I. Klein, then the schools chancellor, and Mayor Michael R. Bloomberg, who presided, said it was the largest gift ever to the city’s schools.

That is how the game is played in power circles. And liberals wonder why I advocate for limited government. This is why. The more power we cede to the government, the more corrupt it will be. We've already given it too much power. The more power we give the government over us, the more graft, bribery, extortion, etc. will exist to push the government to grant favors, as it did with GE. Big government types complain about the influence of lobbyists and special interests, but at the same time they advocate the very expansion of government control that creates and magnifies that influence. If there was nothing to be gained from the federal government, we wouldn't have armies of lobbyists descending on Washington D.C. If we dismantled our ridiculous 67,000 page tax code filled with special favors and replaced it with something simple and equitable, everybody could save a lot of time and money.

And if we had the lowest business tax rates in the world rather than the highest (NO business taxes ideally), then companies like GE wouldn't move so much money offshore. They'd be more inclined to keep it here, where we want it. And other businesses would be more inclined to move money and jobs here, where we want them. It would enable our own small businesses to pay better wages and/or hire more people, and those hired people will all pay taxes to the government. This is not rocket science, and it isn't based on political ideology. It's just common sense.

Lowering business tax rates isn't the total answer, of course. It's just part of the solution. While GE's outrageous negative tax situation is nowhere near typical of corporate taxes, it does raise other issues. GE has been moving jobs and revenue offshore to avoid taxes and for other reasons (to avoid unions ?), but there is a lot more to that discussion. Taxes isn't the end-all be-all. I wish I could tell you how many of GE's 287,000 employees work in the United States, but I don't have that information. Multinational companies like GE can move jobs offshore for reasons other than taxes, there is no doubting that. We all know it's cheaper to produce goods in India or China than it is here, but to me, that is only MORE reason for us to have lower corporate taxes. How many strikes do we want against us in the business world ? We can't compete by saying 'hey businesses, come to America where you will have to pay American workers higher wages, and then if you can still manage to make a profit, we'll tax the crap out of you, unless you bribe the government for special treatment, of course'. How attractive is that ? Let's get smart for a change, and at least make the tax aspect more attractive. Maybe we should adjust our trade policies as well to favor American job creation, though I admit I'm no expert on trade policy. I'm always conflicted over the free trade vs. protectionism argument. I do know the United States is a HUGE market, and will be for a few more years yet before the government bankrupts all of us with debt. All companies want to be in our market, so we have some cards we can play, if our politicians are smart enough to play them (and I apologize for using the words 'politicians' and 'smart' in the same sentence).

Maybe President Obama can bring his many years of international business, trade, and foreign policy experience to bear on the situation............. :) Gotcha ! Thought I'd close with a joke.

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