GE scores big profits, but a small U.S. tax bill
Kai Ryssdal: General Electric is one of those bellwether companies that everybody likes to think represents America. It makes everything from light bulbs to jet engines. It offers financial services and health care diagnostics technology. Its chief executive Jeffrey Immelt heads the president’s advisory council on jobs and competitiveness. He’s a key way for the White House to reach the wider business community.
But today, Immelt’s probably wishing both he and his company were just a little less high-profile. GE paid no corporate taxes in the United States last year on worldwide profits of $14 billion — $5 billion of it here.
At this point, we should say it’s not just GE doing this. Lots of companies know their way around the tax code. It’s totally legal, as the GE communications office pointed out today. But to paraphrase, if I might, is what’s good for General Electric good for America?
Our New York bureau chief Heidi Moore reports.
Heidi Moore: In the financial markets, there’s no such thing as “good” and “bad.” There’s only “profit” and “loss.” So we like it when General Electric is profitable. And when GE’s financial subsidiary, GE Capital, needed a government bailout, that seemed fine too. But when people find out GE didn’t owe any U.S. tax last year, well, the reaction is more complicated.
GE got a tax break because of GE Capital’s losses. But GE isn’t the only company that’s aggressive about reducing its tax bill, says Richard Schmalbeck. He’s a tax law professor at Duke University.
Richard Schmalbeck: I would hazard a guess that just about every multinational company is engaged in some of this. GE may just be bigger, for one thing.
Schmalbeck says companies are allowed to shift the accounting of some of their profits to foreign subsidiaries, where tax rates are lower.
It’s legal, but that doesn’t mean it’s good business, says Chad Brand at Peridot Capital. He manages money for individuals. He’s a fervent capitalist but calls the tax system unfair.
Chad Brand: It’s ridiculous that you can have some companies pay nothing, some companies pay 8 percent and other companies pay 35.
Ironically, the tax code created by the federal government can hurt its own profits, says Schmalbeck at Duke.
Schmalbeck: Corporate taxes have been on a long-term decline as a percentage of total federal revenue and it’s now become a more serious problem because we need revenue from whatever source we can find it.
Most experts don’t blame the companies that take advantage of tax loopholes, they blame the byzantine tax code created in Washington. It’s a system that President Obama, like his predecessors, is trying to change.
Here’s David Kaufman, a lawyer with Duane Morris.
David Kaufman: This is the system which we’ve created. I mean, it’s a bad system in some respects.
GE said today it pays what it owes under the law. It did note that its tax bill will get bigger this year as GE Capital recovers.
In New York, I’m Heidi Moore for Marketplace.
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