The Real GE Scandal
Samuelson, Robert J., Newsweek
Byline: Robert J. Samuelson
It's not that the company won't pay any 2010 U.S. income taxes. It's that we don't know how to tax global business.
In the congressional budget showdown, all the maneuvering has been about what to cut--as if we won't also need higher taxes to curb deficits. A glaring reminder of that came with the news that General Electric--with $14.2 billion in worldwide operating profits in 2010--owes no U.S. corporate taxes for the year. Gulp. The story, first reported in The New York Times, surely caused heartburn in the White House, because President Obama has named GE CEO Jeffrey Immelt as head of the President's Council on Jobs and Competitiveness. Well, GE seems plenty competitive in tax avoidance. The question is, can we do anything about it?
The answer is yes, but the right response is counterintuitive. It's not to raise taxes on multinational companies, but to lower them. To offset that tax loss, we should increase individuals' taxes on corporate dividends and capital gains (profits from sales of stock or property). They enjoy a ridiculously low top rate of 15 percent--a giveaway to the rich that makes no sense as economic policy. The wealthiest 1 percent receives two thirds of capital gains and dividends.
The Times story focused on two separate issues:
First, GE's U.S. taxes. No one's accused the company of anything illegal. It reported a pretax profit of $5.1 billion on its U.S. operations for 2010 but said previous losses eliminated U.S. tax liability. Those losses stemmed from the financial crisis and were incurred by GE Capital, a subsidiary that makes loans. It's also worth noting that GE hasn't fully recovered from the crisis. In 2010, global profits were 44 percent lower than in 2007.
Next, GE's tax avoidance. GE annually files tax returns in 250 global jurisdictions; its tax department has a staff of 975. Like many multinationals, it aggressively strives to steer foreign profits into countries with low taxes; as long as these profits stay abroad, they are not taxed by the United States.
Note that GE's status as a multinational didn't eliminate its 2010 U. …