The New York Times reporter David Kocieniewski reported in an article that General Electric had a profitable year in 2010--$14.2 billion in profits including $5.1 billion from its U.S. operations. The real point of the article, though, is the fact that GE did not owe any income taxes on any of those profits and instead claimed a $3.2 billion tax credit.
According to the article, GE achieved this by executing “an aggressive strategy that mixes fierce lobbying for tax breaks and innovative accounting that enables it to concentrate its profits offshore,” which pretty much means what happens outside of the United States stays outside of the US. GE’s tax department staff includes former US Treasury, IRS, and congressional tax-writing committee officials.
GE should not be looked at as a villain. As a public corporation, GE has a fiduciary duty to its shareholders to find lawful ways to reduce their tax liability.
In fact, I thank GE for demonstrating the evil’s with the US tax code. GE’s tax strategy exposes these negatives in the tax code:
- Tax code discourages repatriation (bringing offshore profits stateside). By keeping cash profits offshore creates jobs and investments overseas instead of in the US. Conversely, bringing cash profits to the US can create jobs and investments in the US.
- GE’s size gave them more opportunities to arrange their finances to avoid tax liabilities. Their smaller competitors do not enjoy those same opportunities and, consequently, pay up to 35% of their profits in income taxes.
- Companies spend money complying with the tax code and lobbying for tax breaks. Money spent on such activities is money passed on to their customers.
The FairTax fixes those problems. The FairTax allows repatriation without any tax liability, creates a favorable tax environment to locate business operations in the United States, levels the playing field for smaller competitors, and drastically reduces spending on tax code compliance.