GE: All Profit, No Taxes
By Barry Ritholtz - March 25th, 2011, 6:07AM
Today’s must read article is a NYT piece about the amazing non-profit tax-paying entity known as GE.
Yet another reason why you don’t bailout companies whose inability to manage risk allowed themselves to become destroyed: They not only do not deserve to continue with the same management/shareholders/creditors who all created the insolvency in the first place, but they are ungrateful bastards as well.
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Source:
G.E.’s Strategies Let It Avoid Taxes Altogether
DAVID KOCIENIEWSKI
NYT, March 24, 2011
http://www.nytimes.com/2011/03/25/business/economy/25tax.html
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March 25th, 2011 at 6:45 am
Two words: TRANSFER PRICING
Transfer pricing allows a firm to shape the tax burden in different countries and even the profits and therefore the bonuses of executives in different divisions (whether within or across country borders). Since this is a well-known approach our federal tax policies likely suffer from the same politicization as the bailouts.
Of course, in the end profits get “transferred” to owners or manager or workers or the taxman, or get reinvested in the firm. It’s all about which oxen get gored and which do not.
March 25th, 2011 at 6:57 am
Lobbying for Tax Loopholes
Tax day is coming for most Americans, but if you’re a well-connected corporation that spent nearly a million dollars lobbying Congress last year, April 15th is just another day. Whirlpool Corporation, which had global sales of $18 billion and turned a $619 million profit in 2010, likely won’t pay a dime of corporate income tax this year… or for years to come, thanks in large part to an expensive lobbying blitz.
In 2005, Congress passed H.R. 6, the “Energy Policy Act,” allowing corporations to claim tax credits for building energy-efficient appliances. Under that law, Whirlpool has collected more than $500 million in credits, as Bloomberg News first reported (subscription required). Yet with the tax credits slated to expire, the company unleashed a full court press effort.
Whirlpool spent $940,000 lobbying in 2010 on issues including energy tax credits. This is more than triple what the company spent in 2007. In addition, a quarter of Whirlpool’s total lobbying tab, $240,000, was paid directly to Capitol Tax Partners, a firm that, like the name implies, focuses on tax policy issues. General Electric, which has reportedly collected about $200 million worth of tax credits, also increased its lobbying spending to almost $40 million in 2010. Coincidently or not, H.R. 4853, the “Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010” passed Congress on December 17, 2010 – and extended the energy tax credits through 2011.
Whirlpool alone is expected to claim $300 million in additional tax credits in 2011, an amount equal to about one-third of the company’s projected 2011 earnings. As the Wall Street Journal points out,
“Those credits can be carried over from one year to the next for up to 20 years. Whirlpool is collecting so many credits that it may not have to pay a dime of corporate income tax for years.” That is quite a return on their million dollar lobbying investment.
The company also invested in politicians. Its’ PAC spent $82,000 during the 2010 election cycle, nearly double what it spent in the prior midterm election. Senate Majority Leader Harry Reid (D-NV) was the top recipient of contributions, followed by former Sen. Blanche Lincoln (D-AR) who served on the Senate Committee on Finance. Reps. Dave Camp (R-MI) and Sander Levin (D-MI), Chairman and Ranking Member of the House Committee on Ways and Means, respectively, were the top two House recipients of Whirlpool PAC cash during the 2010 election cycle, and co-sponsors of the 2010 bill. Undoubtedly, further smoothing the ask, Whirlpool is based in Michigan.
This tax credit expires at the end of the year, so Whirlpool is likely to continue investing in the political process. Given the incredible rate of return, it is money well spent.
March 25th, 2011 at 7:03 am
All the while the CEO and Chairmen , Jeff Immelt is perhaps the ultimate insider with the Obama administration. Just another great demonstration of the incredible hypocrisy that American capitalism has morphed into. Competition for the individuals state preference for the corporations. Glad to see the NYT has quantified the narrative.
http://www.huffingtonpost.com/2011/01/21/obama-picks-jeffrey-immel-ge-jobs-overseas_n_812502.html
March 25th, 2011 at 7:06 am
Two words. Smart company. Come on let’s get real, who else would build all those appliances for a bunch of people who barely are willing to make their minimum payment on their bobo big box store credit card?
I have very little problem with a huge capital intensive firm like GE, or Ford working to figure out ways to make their bottom line less.
I have a much bigger problem with something like drugstore.com having any valuation whatsoever.
It’s a website. I can host one right now. Wouldn’t cost me anything additional. It makes nothing. It employs nobody.
March 25th, 2011 at 7:14 am
[...] From NYT via The Big Picture, where Barry Ritholtz says, “They not only do not deserve to continue with the same management/shareholders/creditors who all created the insolvency in the first place, but they are ungrateful bastards as well.” [...]
March 25th, 2011 at 7:15 am
If you have any problem with GE stop investing. Sorry, this is the way it is done in America. If you want to get mad look at ADM, they actually receive funding from the govt.and are the largest recepient of fed money. Why, because they maintain the biggest corp. lobby in D.C., and don’t forget make corn into fuel. How else do you think the bill to get ethenol up from 10% to 15% passed. I own both of these companies.
~~~
BR: Why does that mean we have to accept this? I do not understand the logic in seeing a wrong, and NOT wanting it to be corrected
March 25th, 2011 at 7:28 am
We’ve been over this ground previously. Yes, transfer pricing from and through tax havens is a large part of the problem. An AMT for Corporations should be used.
I don’t think GE is exceptional in this regard. BR had said he would have an intern do some work on the tax paid by Companies in the Dow but I guess never followed-up.
March 25th, 2011 at 7:31 am
As you say, Barry, people do a lot of lousy things and we could just say “that’s just the way it is” but that doesn’t mean we should tolerate it quietly.
What I find amazing is the taxes (or lack therof) paid by major U.S. corporations who are then complaining about their burden. Well I guess they’re ‘people’ now per the Supreme Court so they can complain just like any other citizen except of course for the additional 200 paid-for lobbysists at their disposal.
I think what’s important is to focus on the real problem in this country which apparently is teachers, fireman, emergency responders and DMV workers with their $42,900 salaries (and yes pensions for many). Apparently that’s what’s bankrupting the country and should be dealt with… of course while we’re simultaneously figuring out how to further appease the large corporations so they can have more influence and pay less taxes and pay larger bonuses to upper management (for successfully lobbying to lower their tax burden).
March 25th, 2011 at 7:32 am
“It is now an Individual vs. Corporate debate – and the Humans are losing.”
http://www.ritholtz.com/blog/2010/09/you-vs-corporations/
Team Douchebag takes all. Game over.
March 25th, 2011 at 7:39 am
Ge being an “artful dodger” is not the problem. Nor is their lobbying. What would you expect them to do these last fifty years given the nature of politicians. The problem lies in the Tax codes as written. We continue to pound the symptoms rather than remove the cancer that allows this legal behaviour.
But they will never rewrite the codes because they allow politicians to be politicians as Immelt fully knows as he chills with Obama.
March 25th, 2011 at 7:43 am
The middle class is complicit in its own fleecing. Once again, we know this is wrong, and we know why, yet we are powerless to do anything about it. This could be fixed with the stroke of a pen (if the pen, paper, desk, office and bureaucracy weren’t already in the hands of the Corporatists).
March 25th, 2011 at 7:47 am
Barry,
Don’t you know that Immelt is now one of Obama’s favorite people? Hi’s like Obama’s “jobs czar” or something? Yes, the CEO of tax non-paying company that created more jobs in China than in the USA is now a jobs czar. This is more than simple “regulatory capture,” this looks like GE winning “hearts and minds” of the administration. Hell will freeze over before they get to pay their fair rate.
And b.t.w., another tax non-payer is still the boss at the Treasury, and therefore boss of the IRS
March 25th, 2011 at 8:29 am
@daviddarro,
If you think for a nanosecond that people will always accept this brain dead logic of yours forever, just BLOW.
If corporations want to benefit from the US, they oughta pay what it cost.
You got a problem with THAT?
March 25th, 2011 at 8:33 am
from a blog
Business Week explains how Google profits end up in Bermuda, and shows how multinational corporations pit national tax codes against each other.
“Google’s profits travel to the island’s white sands via a convoluted route known to tax lawyers as the DOUBLE IRISH” and the “DUTCH SANDWICH.”
google had the good PR sense to still pay a little. there are ideas out there to definitely lower the rate and maybe clean this up.
March 25th, 2011 at 8:46 am
As “allan” wrote at Firedoglake, citing an article from the Boston Globe:
http://www.boston.com/business/articles/2010/11/18/ge_says_tax_credit_would_limit_lynn_layoffs/
Just like he said; power corrupts, absolute power corrupt absolutely. And Washington pols are peachy-dandy with that, so long as we, the suckers, keep them there.
In 2012, we need a send a very powerful message to these asshats. I don’t see why my children should be burdened with debts that GE et al. should help paying.
March 25th, 2011 at 8:47 am
and how bout the part where GE gets money back.
not just a refund of excess withheld, MONEY BACK for the whole year, negative taxes.
three words baby
tax loss carryback
extended as part of the first stimulus package
Recommended by Rs passed by Ds, banks and GE capital write down their losses
then take tax deductions against it for the next 5 years
March 25th, 2011 at 8:52 am
I call the solution the “velocity tax”:
it’s a unique, universal, tax excised every time money moves, or “changes hands” no matter who what where which account. Yes, even within a company. ESPECIALLY within a company in fact.
The rate is the same for every use. It replaces and rescinds Personal income tax, Business, Corporate tax, Inheritance or Estate Tax, VAT and every an all other “special” taxes.
Imagine the savings, the IRS becomes a universal coefficient in every transaction. We can fire a bunch of bureaucrats and pencil pushers.
The rate only changes slowly and uniformly, depending on how much energy “the state” (very broadly defined) needs to extract from production to provide it’s functions (whatever they are). Yes the state taxes itself. It forces state institutions to become effective with funds.
(No; the taxation transaction itself is not taxable, that would create a tear in the fabric of the Universe, aka complete protonic reversion, crossing of the beams etc)
No more HFT, or at least not the current circle-jerk bullsh|t kind.
The more you try to “evade” tax by moving it around, the more you pay it.
Free benefit: people would think more than a femtosecond before buying stuff they don’t need then return it to the store for credit.
I think this system would be fair, since the rate would be identical, and would profoundly change our financial landscape. It would probably reduce financial speculation. And it will never happen, we’re just too short sighted.
March 25th, 2011 at 9:09 am
Meanwhile they use millions to lobby political whores for repatriation tax holidays.
“In 2004, when the U.S. enacted a repatriation tax holiday, the goal was to encourage U.S. multinationals to pay bigger cash dividends from their overseas subsidiaries and use the cash to make investments in the United States. Unfortunately, there is no evidence that it increased U.S. investment or jobs, and it cost taxpayers billions. ”
The Congressional Research Service actually found that the largest beneficiaries of the last tax holiday cut jobs over the subsequent two years.
http://www.treasury.gov/connect/blog/Pages/Just-the-Facts-The-Costs-of-a-Repatriation-Tax-Holiday.aspx
It’s a wonderful world…for some.
March 25th, 2011 at 9:52 am
“do not deserve”? “ungrateful bastards”? Please. This is just one way a company that started in the 19th century manages to not only stay in business in the 21st century but to play a leading role in its major markets. Even though it can’t print its own money as governments can. (Give more in taxes to the government because they’ll be sure to use it for the common good? Now that’s pretty funny.)
It’s naive to expect big companies not to use their influence try to shape tax law in their favor. GE is just a lot better at it and bolder in doing it than other companies. According to my way of thinking as a shareholder they have a duty to pay as little as possible in taxes without breaking the law, and that they’ve been so successful at it is a tribute to their skill. Way to go, GE.
You want to reduce this type of behavior? Then lower taxes to the point where it makes more economic sense for them to focus on other ways to make as much money.
March 25th, 2011 at 10:08 am
Proportions should be the basis for tax levying. The focus should be on how cash is used within the corporation’s ‘organism’. The greater the percentage pushed to the top end of G&A, the greater the weight of the tax rate.
In addition, a levy for military action should be placed on all US domiciled MNCs. The US military’s capacity to project force serves their interests SOLELY. They should pay for it.
Finally, the premise that guys like Nardelli et al have a ‘right’ to outsized compensation needs to explored. Being able to is no justification for theft.
March 25th, 2011 at 10:20 am
Nisky
“(Give more in taxes to the government because they’ll be sure to use it for the common good? Now that’s pretty funny.)”
and then
“You want to reduce this type of behavior? Then lower taxes to the point where it makes more economic sense for them to focus on other ways to make as much money.”
Give more tax breaks to corporations because they’ll be sure to use it for the common good? Now that’s pretty funny too.
March 25th, 2011 at 10:21 am
Some of America’s biggest recipients of handouts are rich people. The biggest corporate freeloaders may be the biggest industrial corporation in the world: General Electric.
General Electric CEO Jeffrey R. Immelt is super-close to President Obama. The president named Immelt chairman of his Council on Jobs and Competitiveness. Before that, Immelt was on Obama’s Economic Recovery Advisory Board. He’s a regular companion when Obama travels abroad to hawk American exports. (Why does business need government to do that?)
Read more: http://stossel.blogs.foxbusiness.com/2011/03/24/freeloaders-a-john-stossel-fox-news-special-10pm-et-this-friday/#ixzz1HcZYoemA
March 25th, 2011 at 10:32 am
BR writes:
Amen. This is the result of a leadership problem that needs to get fixed – both in Schenactedy and in Washington, D.C.
March 25th, 2011 at 11:29 am
The pieces that go into aggregate corporate income are complex and so is their respective tax treatment — for good policy reasons, IMO. For example, income from corporate capital gains.
The big problem I have is with abusively using off-shoring to create tax havens. From a pure economic theory standpoint, I’m not sure what the basis is for double taxation of c corps. The problem with tax structure is you’re never going to get back to a perfect correlation between what you pay, what you get, and what you cost the public for the privilege of existing. This provides cover for arguments against corporate taxation, above and beyond general government bashing.
Companies come back and say our investors get higher dividends with less tax corporate-level tax, our employees get paid more, we hire more people, and there is therefore a greater multiplier effect in communities/countries blessed with our presence.
Of course, now that the separate existence of the corporation has been exalted by Citizens United, you might ask why some “citizens” possessed of unlimited free speech get to keep more of their dollars than biological citizens…
March 25th, 2011 at 12:40 pm
Its just kike what happened with GM. Bankruptcy rules were rewritten to allow GM to emerge from bankruptcy with huge tax credits to use against future gains. Normally, a company coming out of bankruptcy is never allowed such treatment. And GM is considered by many to be a model bailout. So if okay for GM, why not okay for GE to try to maximize profits this same way?
March 25th, 2011 at 12:54 pm
We need a corporate minimum tax based on the total of bonus/stock-options/pay to the top 10 in the leadership and the dividend/stock buy-backs for the stockholders. No matter what a corporation have of deductions credits etc, it always pay at least as much in corporate tax as that minimum percentage of goodies distributed to the leadership and stock holders.
March 25th, 2011 at 12:57 pm
http://thinkprogress.org/2011/03/25/geo-ceo-greed-taxes/
Immelt is cursed by his own words, the hypocrite: “I think we are at the end of a difficult generation of business leadership, and maybe leadership in general. Tough-mindedness, a good trait – was replaced by meanness and greed – both terrible traits. Rewards became perverted. The richest people made the most mistakes with the least accountability.”
March 25th, 2011 at 1:00 pm
BTW, the employees of GE HATE Immelt. The last repair tech I had visit had a long, long discussion with me about it…
March 25th, 2011 at 1:21 pm
“one way a company that started in the 19th century manages to not only stay in business”
“Even though it can’t print its own money as” .. stocks come close .. since return of principle is all in the 90/10 rule
ie “possession is 9/10ths of the law & the other tenth is for lawyers”
but I was wondering in GE’s case – anyone know how many times they drowned and were saved by bankruptcy over that time period … and I don’t mean to pick – I have (had) $s in my pocket from GE endeavors over my years – and T.Edison (CEOemeritus) is a hero inventor of mine
http://en.wikipedia.org/wiki/Thomas_Edison
March 25th, 2011 at 1:38 pm
I am not an “investor” (clearly evident by my retirement fund). I follow this blog because of the marco view, scintillating posts, and BR’s upfront perspective of investing as part of a broader social context.
Post to this particular entry highlight differences between those who see investing as a “winner take all” screw what happens next activity – call it “IBGYBF” and those who share a more long term perspective.
March 25th, 2011 at 1:47 pm
maybe, now people will have a better appreciation for .. “It ain’t the Rates, it’s the Rules.”
~~
and, this, re: GE .. “Yet another reason why you don’t bailout companies whose inability to manage risk allowed themselves to become destroyed…” (BR, above) has been waay overlooked..
(thanks FDIC !)
LSS: GE Capital (still) should have put GE into BK reorg.
March 25th, 2011 at 1:53 pm
I’ve been long in GE since it was at about $10 a share! :-) However, I do think that the whole tax policy in the country from individuals to corporate requires an overhaul so that all this “wizardry” to minimize tax liability is eliminated. I laugh each time I read a piece from the Chamber or Business Roundtable objecting to the high US corporate tax burden. You can probably count the number of US firms pay the full rate on one hand (and that’s because they don’t have clever accountants). It’s a total joke!
March 25th, 2011 at 2:06 pm
Barry,
I can’t view the NYT link. I am in Canada and have not signed up to the new NYT plan. Funny thing though, I simply get a blank page…… zippo. No message, nada. This could confuse a fellow.
Your in NY a lot. Talk to them about this.
Keep up the the stupendous work. (Your site is worth 15 a month………. don’t get any ideas though.)
March 25th, 2011 at 2:19 pm
No surprises here. In case you don’t already know, Lenin’s classic “Imperialism – the highest stage of capitalism” (published 1916) contains a very detailed and interesting analysis of how GE manipulated governments to its advantage.
March 25th, 2011 at 2:20 pm
Most people who post here think that the higher the top marginal tax rate is (on corporations and on “the rich”), the better off the middle class will be. The situation with GE demonstrates this not to be the case.
I say, lower the top tax rate on both corporations and individuals, and eliminate as many deductions as possible (and cut the goddamn Federal budget while we‘re at it).
March 25th, 2011 at 3:44 pm
@ sinomania
Lenin being merely an impartial observer, of course.
March 25th, 2011 at 4:10 pm
If GE wants to reduce their tax burden, then why don’t we, the mass consumers, help them out by voting with our $$ – stop buying GE products.
The stench from yet another “sulfurous fart” emitted by the devils of the kleptocracy is choking out hope of restoring equal rule of law and constitutionally sound government.
March 25th, 2011 at 8:37 pm
Its strange the GE is non profit yet paying taxes???
March 26th, 2011 at 8:26 pm
[...] and customers, they aren’t very rateful and certainly are not about to give anything back. Barry Ritholtz at The Big Picture writes, Yet another reason why you don’t bailout companies whose inability to manage risk allowed [...]
March 27th, 2011 at 3:02 pm
[...] and customers, they aren’t very grateful and certainly are not about to give anything back. Barry Ritholtz at The Big Picture writes, Yet another reason why you don’t bailout companies whose inability to manage risk allowed [...]