Saturday, March 26, 2011

GE Has No Tax Liability for 2010 Despite Profits

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.

Friday, March 4, 2011

Response to a Naysayer Blog

This is a response to the Fairtax Spokesmen Explain Their Hidden Tax blog that acts like it is exposing a trillion dollar hidden tax. The blogger, "Seeker", recently commented on one of my posts. That tax is referring to the fact that all governing bodies(federal, state and local governments) are not exempt from the FairTax. That means merchants and contractors will have to collect the tax for goods and services provided to state and local governments. I never intended to hide or deny this fact. So, for really full disclosure, non-profits are also not exempt.

Under the FairTax, government contractors would be exempt from the FairTax. Not only that, but they nor any other business would have to pay income taxes or federal payroll taxes (social security, medicare, federal unemployment taxes). This allows businesses to price their goods and services more competitively, especially when bidding in government competitive bid contracts. In fact, research while developing and drafting the FairTax proposal found that 22% of the prices we pay for goods and services go towards taxes that manufacturers, distributors, and retailers have already paid to bring the products to market.

Now, I doubt that the contractors would be able to lower their bids by 22% if the FairTax was in effect; therefore, the governing bodies may end up paying more under the FairTax. That, though, could be a good thing if it forces those governing bodies to be more careful spending OUR money.

One thing that the blogger, who used the name “Seeker”, failed to mention was that even governments would not have to pay payroll taxes (social security, medicare, federal unemployment taxes) on wages that they pay to its employees. For most governing bodies, wages are a major part of their budgets. So, this will provide some relief for governing bodies.

There some are parts of the FairTax that I don’t like, and there are other parts that others don’t like. I know one part that Seeker doesn’t like. All in all, though, I like the FairTax and still support it.

The Fair Tax -- At Least Worth a Debate?

Here is a comment I made in response to article The Fair Tax -- At Least Worth a Debate? on The Huffington Post.

Lanny,

Thank you for writing about the FairTax. While I don’t agree with your conclusion­, I commend you for explaining the FairTax in an unbiased manner. The FairTax indeed favors the low and middle class thanks to the prebate and eliminatio­n of wage earner FICA contributi­ons. True, the FairTax will hurt the tax preparatio­n industry thanks to the complicati­on of our current tax system, but we citizens shouldn’t have to have the extra burden of hiring someone to do our taxes. Some really hate hiring someone only to learn they owe Uncle Sam even more money. As a former tax preparer myself, most of my clients were low and middle income that could hardly afford the $50 on up fees that my firm charged to do their tax returns.

Since one of the FairTax provisions is to repeal the income tax, these punch clock workers won’t have to file tax returns. The businesses still have to, but many already do because they have to remit collected state sales tax. Clearly, the FairTax needs to be implemente­d.

Wednesday, March 2, 2011

FairTax favored over Flat Tax at the Tea Party Patriots American Policy Summit

Last weekend was the Tea Party Patriots American Policy Summit. Obviously, one of the event topics was taxation, and both the FairTax and Flat Tax proposals were discussed. The FairTax is consumption based (sales tax) and offers a monthly rebate to all households where as the Flat Tax is one flat rate (one tax bracket only) on excess income.

During the summit, a “straw poll” was taken. According to Fair Tax Nation, the FairTax was favored with 52% of the votes. The Flat Tax received 15% of the votes.