Last week, the New York Times published a rather indignant article on how GE paid no US taxes in 2010 despite earning $5.1 billion in US income; “In fact,” says the New York Times, “GE claimed a tax benefit of $3.2 billion”. I found the article rather messy and underwhelming–what does it mean that they “claimed a tax benefit”?–and its main point seems to be the rather extraordinary position that GE has a moral obligation to maximise the taxes it pays. The author seems to think it’s outrageous–outrageous!–that GE has a lot of people in its tax department who spend a lot of time trying to minimize the company’s taxes. Many paragraphs are devoted to this, to no obvious point, including a ludicrous quote from Len Burman:
“In a rational system, a corporation’s tax department would be there to make sure a company complied with the law,” said Len Burman, a former Treasury official who now is a scholar at the nonpartisan Tax Policy centre. “But in our system, there are corporations that view their tax departments as a profit centre, and the effects on public policy can be negative.”
This is, of course, exactly what the tax department does–ensure that they pay the minimum of taxes while complying with the law. I am quite sure that neither Mr. Burman nor Mr. Kocieniewski refuse, as a matter of conscience, to take the deductions to which they are entitled, and they almost certainly pay someone or some company to ensure that they’re . . . um, paying the least possible taxes while in compliance with the law. And they’re not under basically continual audit. Fantasizing about a world in which corporations behave more generously than Mr. Burman and Mr. Kocieniewski doesn’t seem either fair or realistic.
His complaints about lobbying are on firmer ground. I don’t like the fact that GE lobbies aggressively on tax rules, and I certainly wish that Congress would not oblige them by passing bad laws that benefit GE. On the other hand, the author of the article takes it as obvious that any law which benefits GE must ipso facto be a bad law. So a publication which has not, in the past, been particularly hostile to green energy tax credits is suddenly outraged that GE has lobbied in support of them. (GE sells wind turbines, which were, last time I looked, squarely within the standard definition of green energy). I mean, I’m against green energy tax credits and all–but you can’t simultaneously think that this sort of egregious government meddling is OK in the service of the environment, and also think that it’s wrong for GE to lobby in favour, or benefit from selling the stuff. If it’s good for the environment, we want companies to benefit from selling more stuff! Moreover, I am under the impression that these tax credits go to people who buy wind turbines, not people who make them–in other words, that this particular tax credit boosts GE’s sales, not reduces its taxes, which is the ostensible subject of the article.
And while the author gives paragraphs and paragraphs to complaints that we don’t do enough to tax foreign earnings, he offers only the weakest and least convincing counterarguments. Of course, he doesn’t even consider that this is an argument against the corporate income tax.
So I was rather sceptical of the factoid about GE’s freedom from taxes. First of all, the definition is as muddy as the article: what are “US taxes”? US federal income taxes? Because I’m quite sure that GE paid some payroll tax, various fuel taxes, etc. And no matter how good their tax department, I’m pretty sure it didn’t work GE’s personal liability below zero.
GE Capital lost billions in the financial crisis, which I assumed gave them a nice, fat, NOL carryforward to lessen their tax burden in future years. And I am unaware of any good arguments against at least moderate allowances for loss carryovers–corporate income is frequently much lumpier than personal income, and the tax code should allow for that. The article gives brief mention to the losses, but curiously, does not quantify how they might have contributed to GE’s lower tax bill even though I’m sure GE would have provided those numbers. The treatment of the losses, moreover, is confusingly opaque, and rather buried.
But Henry Blodget goes head to head with the GE press office and comes out believing that it’s worse than that: the New York Times is simply wrong.
GE was, in fact, “spinning” when it said it “paid significant federal income tax in 2010.” AND the New York Times was flat-out wrong.
GE was spinning because the taxes paid were just payments on a tax bill that has yet to be calculated–similar to the withholdings that individuals have taken out of their paychecks that are often followed by an end-of year refund. And the New York Times was wrong because, even leaving aside the income tax issue, there is simply no way that GE’s US tax bill in 2010 can be fairly described as being “none.” GE paid many different kinds of US taxes in 2010–state, local, payroll, etc.–and, according to Eisele, its 2010 income tax bill (which still has yet to be determined) is likely to be positive.
So is it fair to say that GE does everything in its power to pay as little taxes as possible and does a very good job of paying a shockingly small amount relative to its huge profits? Yes. But it is not fair to say that GE’s 2010 US tax bill was “none.”
Whatever criticisms have been leveled at Mr. Blodget’s work as an equity analyst, I’m quite positive that he knows how to read a financial statement. And having gone through his exchange, I don’t see any way around it: the lede of the New York Times story simply cannot be reconciled with what GE is saying. Either GE is lying, or the New York Times is going to have to publish a correction.
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