Rhetorical Questions for Jeff Gerth and Allan Sloan on Their GE Tax Story
Did GE get a $3.2 billion tax refund? No.
Did GE pay U.S. income taxes in 2010? Yes, it paid estimated taxes for 2010, and also made payments for previous years. Think of it as your having paid withholding taxes on your salary in 2010, and sending the IRS a check on April 15, 2010, covering your balance owed for 2009.
Will GE ultimately pay U.S. income taxes for 2010? After much to-ing and fro-ing — the company says it hasn’t completed its 2010 tax return — GE now says that it will pay tax. (For more on GE’s tax strategies, see GE’s taxes: A case study)
Why should you care about this? Because we all have a stake in how this plays out. Thanks to the uproar over GE, we now risk ending up with legislation that targets GE but produces all sorts of unintended consequences. Public rage can make for bad law. For example, the Alternative Minimum Tax was adopted in 1969 amid an uproar generated by a Treasury report that said 155 wealthy families had paid no income tax. But the bill, badly designed and badly amended, has morphed into a mess that affects millions of middle- and upper-middle-class families, but not the really-high-income tax-minimizing families. They’re not affected because the AMT fades out of the picture for families with income of $600,000 and up.
But let me ask a similar series of rhetorical questions.
Was the New York Times story wrong? No. GE did in fact claim tax benefits of $3.2 billion, based on credits that they could claim as a large corporation involved in a lot of alternative energy projects. It’s not in dispute, it comes out of GE’s 2010 financial statement.
Is the GE tax liability low by global standards? Absolutely. Their tax liability will be “small,” according to their chief spokesman, contradicting a spokesman who talked to the NYT, who said that they would have no liability at all. And while the spokesman declined to say how small, Sloan and Gerth estimate that for last year, the effective tax rate will approach 7%. Now, everyone on the right screams about the high corporate tax rates in America, but they’re talking about the nominal tax rate. The effective tax rate, as you can see, is quite low.
Was the New York Times story important? Very. As Felix Salmon explains, Gerth and Sloan would not have been able to finish their story without it:
What we have here, then, is a classic example of the power of iterative journalism. In the wake of a big story, further important details nearly always emerge. But in this case, the NYT was the worst possible place for those details to be published and the story to iterate: the paper was far too busy formally standing by its story and failing to engage GE’s PR spin in public. So it’s great that Sloan and Gerth — both veteran financial journalists who aren’t daunted by obscure 3,000-page leasing handbooks — were perfectly positioned to pick up the story and carry it forwards.
The big picture, here, is just as scandalous as Kocieniewski made it out to be. GE can, at the margin, raise or lower its tax bill by billions of dollars at a stroke, simply by declaring overseas profits to be indefinitely invested abroad. It epitomizes the revolving door between the IRS and private industry — the head of GE’s tax department, for instance, is a former Treasury tax official. It has its very own US tax loophole — the “active finance exemption”. It uses the American Jobs Creation Act of 2004 to save hundreds of millions of dollars in taxes every year by moving jobs to Ireland. And so on and so forth.
Are Sloan and Gerth the defenders of complexity, then? Whatever. They accurately explained the details of GE’s tax shenanigans, and they don’t look all that much better than when David Kocieniewski laid them out in the NYT. It’s valuable to look at the specific strategies that GE uses, and I’m glad Sloan and Gerth wrote the piece. But they come at it with such an hauteur, positioning themselves as the only keepers of the truth, and they are essentially denigrating the conclusions of the NYT article while coming to the same ones. Sloan and Gerth even acknowledge this in one paragraph.
Is GE right to take advantage of their tax benefits? Joe Nocera says you can hardly blame them:
If anything, the fact that G.E. is a big company should give it even more incentive than we mere human taxpayers to minimize its tax bill. The executives who run America’s corporations have a fiduciary duty to maximize profit for their shareholders. That’s what they’re programmed to do. One way to maximize profits is to minimize taxes, something G.E. does better than just about any other company. If I were a G.E. shareholder, I would be thrilled to learn that its vaunted 1,000-person tax department is viewed within the company as a profit center.
I agree with Nocera’s conclusion: “The real villain here isn’t G.E. for gaming the corporate tax system. Rather, the villain is a political system that makes the corporate tax system so easy to game.” Blame Congress for allowing these loopholes to take root. Blame them for allowing this cant about debilitating corporate tax rates, too. Because the fact is that corporations make out like bandits in America, and reduce their tax burden to the point of near nothingness. With corporate tax reform on the agenda, these companies want to lower the nominal rate but keep all their deductions and shelters and loopholes. Congress can put a stop to that, but it’s their decision to resist the lobbyists, including the lobbyists of GE.
So, was the NYT article worth adding to the debate? Without it, the real story of GE’s tax-dodging would never have come to light.