Obama Calls For Corporate Tax Cuts, But Paying For Them Is The Hard Part
President Barack Obama called on Congress to lower corporate tax rates in his State of the Union address Tuesday night, suggesting the measures could be paid for by closing certain loopholes but offering few concrete details. If and when lawmakers move forward on corporate tax relief, the key battle lines are likely to be drawn over those fuzzy pay-fors.
"I'm asking Democrats and Republicans to simplify the system. Get rid of the loopholes," Obama said in his address. "A parade of lobbyists has rigged the tax code to benefit particular companies and industries."
Officially, the top corporate tax rate in the United States is 35 percent, one of the highest in the world. But the federal tax code is filled with so many loopholes and credits that few companies actually pay that rate. General Electric, for example, only paid an average of 3.6 percent over the last 3 years, according to the most recent annual company report.
G.E. is not the only company that succeeds in paying dramatically less than the top corporate tax rate. But it is -- as HuffPost's Shahien Nasiripour reported last week upon the selection of G.E. CEO Jeffrey Immelt to be Obama's next top outside economic advisor -- an exemplar of the kind of firm that employs such creative accounting while taking advantage of handouts from taxpayers, many of whose jobs it outsources to other labor markets.
Nasiripour explained how G.E. has navigated the loopholes of the corporate tax code so successfully:
Rather than invest in the U.S., the company has decided to look elsewhere. In 2008 and 2009, GE decided to "indefinitely" reinvest prior-year earnings outside the country, according to SEC filings. That's helped the firm lower its tax rate.
In 2009, the Connecticut-based firm effectively had a negative tax rate, thanks to the $498 million loss it booked on U.S. operations versus the $10.8 billion in earnings it booked abroad. GE realized a $1.1 billion tax benefit in 2009.
In 2008, it paid $1.1 billion in taxes for a 5.3 percent tax rate. In 2007, it paid $4.2 billion in taxes for a 15.1 percent tax rate.
By comparison, during those three years -- 2007 through 2009 -- the firm reported combined net income of $50.6 billion.
Following the State of the Union, the Associated Press noted the difficulties Obama will have in reorganizing the tax code, which currently runs 3.8 million words:
It will take a sustained effort by the administration, however, to forge a consensus with lawmakers on reshuffling corporate taxes in a way that is sure to create winners and losers. The "loopholes" Obama talked about in his speech are regarded as cherished, well-deserved tax breaks by many lawmakers in both parties.