Friday, March 25, 2011

GE Avoids Paying Taxes

A front page article in the New York Times concerns how General Electric managed to pay zero corporate income taxes in 2010 even though its profits from U.S. operations was $5.1 billion. It's total profit was $14.2 billion, with the difference not repatriated to the U.S. One can imagine the hue and cry this may cause among liberals, but I think all of us should be concerned.

Taxes distort decision making; there is virtually no way to prevent that. But the U.S. tax code distorts at so many levels it is hard to know the final effects. From the high rate on repatriated profits, to the high corporate tax rate, to tax credits for some activities--the code encourages firms to spend huge amounts of money on lawyers and tax accountants to understand and take advantage of the code. But, that isn't all. The article shows that GE often takes the initiative in lobbying for tax breaks. They have a lot of lobbyists and utilize them. The article ends with a quote from Gary Sheffer, a G.E. spokesman, "We are a diverse company, so there are a lot of issues that the government considers, that Congress considers, that affect our shareholders. So we want to be sure our voice is heard."

I do not object to lobbying since it is difficult to see how a representative democracy would operate if people cannot make their views known to their representatives. Of course, corporations are not people, but the shareholders and workers are.

The recent task force that made recommendations on ways to reduce the deficit argued for lowering of rates but reducing loopholes and tax breaks. I enthusiastically endores such a plan. On the other hand, I am somewhat pessimistic or cynical. If Congress enacted a simplified tax code for both individuals and corporations that eliminated tax deductions and credits for every item Congress has thought needed support, we would have a better system. But, I would expect that breaks, loopholes, credits and other distortions would creep back in over time, so that a decade from now it would look a lot like the current code.

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