BUSINESS
04/01/2014 07:35 am ET | Updated Apr 01, 2014

If GE Gets Its Way, The U.S. Government Could Lose $62.5 Billion

ASSOCIATED PRESS

When it comes to squeezing big rewards from obscure provisions of the tax code, General Electric leaves nothing to chance.

Over the past two years, GE has deployed more lobbyists than any other company to argue for a tax loophole that lets businesses deduct interest earned from overseas lending, according to a new report by Americans for Tax Fairness, a tax-reform advocacy group. This particular tax break will likely cost the U.S. government $62.5 billion in revenue over the next decade, according to the report.

According to the report, GE lobbyists made contact with lawmakers or their staffs at least 863 times over a two-year period between 2011 and 2013 to argue for the loophole, known as the "active financing exemption." Congress is expected to extend the exemption again soon, with bipartisan support. The company paid its lobbyists $63 million to advocate for the exemption and other tax-related interests over that time, Americans for Tax Fairness found.

In comparison, Citigroup, the next-busiest company, sent lobbyists half as often to push for the deduction and spent less than $15 million, according to the report.

All told, the top 30 companies and trade organizations that lobbied for the exemption -- representing major Wall Street banks and other big multinational companies with financing arms, such as GE and Ford -- made more than 4,000 contacts with Congress to press for an extension of the exemption, according to the study. They paid lobbyists $586 million over that time.

The tax break essentially lets businesses indefinitely shield from U.S. tax authorities interest they earn from lending money overseas.

"This is the heart of Wall Street really pushing hard," Frank Clemente, the executive director of Americans for Tax Fairness, said in an interview. "They are masterful at showing how a relatively narrow special interest can year after year continue a very large tax loophole without any opposition."

In a statement, GE spokesman Seth Martin said that the report "distorts the facts and reflects a politically motivated agenda from its authors."

"The truth is that active financing applies the same rules to financial services that permanently apply to every other U.S. business sector," Martin said. "Lawmakers on both sides of the aisle and respected third-party experts agree that these rules should be a permanent feature of the tax code."

It's not clear how much the loophole benefits each individual company, in terms of tax savings. It also can't be determined from lobbying records how much money GE or other companies spent specifically to push for the active financing exemption -- companies often lump together spending totals for several issues together.

But GE wrote in its 2012 annual report that if the provision were not renewed, "we expect our effective tax rate to increase significantly."

Together, 41 companies have deployed nearly 300 lobbyists to argue in favor of this break. Most of those doing the lobbying are former members of Congress, congressional staffers or executive branch officials, the study found.

Congress technically did away with the active financing exemption as part of a tax-code overhaul in the 1980s. At the time, lawmakers said it was too easy for companies to cut their tax bill artificially by making it seem as if profits earned in the U.S. were instead earned overseas.

Yet Congress reintroduces the exemption every year, as part of a giant package of more than 50 tax breaks known as tax extenders, which the Congressional Budget Office calculates could cost the government $700 billion over the next decade.

Some of these breaks are popular with the middle class, including deductions for schoolteachers for the cost of school supplies and aid for homeowners who lose money on the sale of their houses. But 90 percent of Congress' annual tax-break bonanza benefits businesses, according to the Americans for Tax Fairness report. Among the more bizarre carve-outs is a deduction that NASCAR racetrack owners can claim for the cost of maintaining their courses.

Support for the extenders is typically bipartisan. The last round expired at the end of 2013, and Congress is now considering a package that would apply the tax breaks retroactively to the beginning of 2014.

The companies who have pushed hardest for the extension of the tax loophole are among those that are the most criticized for exploiting U.S. tax laws in order to shelter huge amounts of revenue overseas. Though the U.S. corporate tax rate is technically 35 percent, the companies that employ the active financing deduction and other tax-sheltering mechanisms pay a far lower effective rate.

General Electric, according to some calculations, pays an effective rate of less than zero in many years. GE claimed a tax benefit of $3.1 billion -- meaning it claims it overpaid by that much -- between 2008 and 2012 on $27.5 billion in profits, according to Citizens for Tax Justice, another tax-reform group. The company's five-year effective tax rate was negative 11.1 percent, according to CTJ.

GE also disputes this calculation as inaccurate. The company says it pays state and federal taxes every year.

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