The tax man and Santa Claus have two things in common. Every year they 'cometh' -- just not for everybody. Santa doesn't visit those who've been 'bad,' and the tax man doesn't visit those who have high-priced lobbyists working for them.
The current best example of the latter -- best in both 'pertinence' and 'dollars' -- is General Electric Company, the nation's largest industrial company. "Best in pertinence" because GE's chairman and chief executive officer, Jeffrey Immelt, is now also Mr. Obama's chairman of the President's Council of Jobs and Competitiveness and because, according to the New York Times, GE spent $4.1 million last year on outside lobbyists to preserve favorable tax treatment for its earnings. "Best in dollars" because despite worldwide profits of $14.2 billion in 2010, of which $5.1 billion came from its operations in the United States, the company announced on March 23 that its American tax bill was none, nada, zilch.
And of course this isn't the first time that GE has drunk from the 'zero-taxes trough.' The company's consolidated tax rate from 2005 through 2009 was only 11.6%, including state, local and foreign taxes, and a mere 6.6% in 2009, compared to the 30.5% average for all the companies in the Standard & Poor's 500-stock index, according to Bloomberg Businessweek.
David Kocieniewski of the New York Times thoughtfully wrote that GE's extraordinary success at driving its U.S. tax rate to near zero, from around 30% in the mid-1950s, is the result of "an aggressive strategy that mixes fierce lobbying for tax breaks and innovative accounting that enables it to concentrate its profits offshore." GE's more than $200 million spent on lobbying Congress over the last decade (per the Center for Responsive Politics) and the tax avoidance schemes it produces with its massive 975-person tax department are no different in intent than the tax avoidance schemes that President Franklin D. Roosevelt wrote to Congress about in 1937, which, he said, "shift the tax load to the shoulders of others less able to pay and mulct the Treasury of the Government's just due."
Of course what makes all of this especially galling is listening to Mr. Obama deride in his January 25th State of the Union Address the "parade of lobbyists" who have "rigged the tax code to benefit particular companies and industries." He uttered these words just four days after, on January 21st, appointing as his "liaison" to the American business community the CEO of the company that (per Bloomberg News) spent in 2010 more on tax lobbyists than any other company or trade association in the country.
Having this important government post apparently gave Mr. Immelt no pause even in the few weeks immediately after his appointment, first in lobbying against Mr. Obama's very own tax proposal that would have limited the ability of companies like GE to defer even more types of overseas income and then in disingenuously calling for reform of the corporate tax code while all the while defending his company's zero U.S. tax rate in 2010 and its ongoing overseas tax avoidance schemes.
Is it any wonder then, with the economy-related personnel choices that Mr. Obama makes, which so often contradict both his campaign promises and his speeches as president, that 60% of those surveyed in a CNN/Opinion Research poll disapprove of his handling of the economy?
The underlying issue that needs to be confronted by the administration and Congress is narrowing greatly the entire spectrum of "tax avoidance," since the greater culprit here is ultimately our own government, albeit increasingly under the influence of big-business lobbyists. The degree to which members of Congress from both parties enact tax loophole after tax loophole that benefit their favored companies continues unabated -- so much so that corporate taxes, which accounted for 35% of all federal revenues in 1945, accounted for less than 9% in 2010. And the unwillingness of President Obama to stand tough on his campaign pledge to level the tax playing field between American and foreign workers -- and between the U.S. Treasury and the treasuries of our major trading parties -- is a mind-boggling disconnect given this country's extreme revenue shortfall in our current federal-budget-challenged strait.
Tax evasion, we all know, is the willful illegal failure to pay taxes that are due. Tax avoidance, on the other hand, is, generally speaking, the legal and ethical practice of paying only those taxes that are due, and no more. However, tax avoidance becomes inappropriate at a minimum and in some instances even unethical when it is the nation's major domestic and multinational corporations -- rather than the people's Congress -- which, through the efforts of their lobbyists, become the architects of the very tax avoidance schemes that they then take advantage of.
In my book, It Takes a CEO: It's Time to Lead with Integrity (Free Press, 2005), I wrote at length about what I believe is the equal and concurrent responsibility of American corporations to their shareholders, employees, customers and communities and to the nation. And this isn't an isolated view. It was fairly commonly held in the post-WWII era, and as long ago as 1981, ironically largely at GE's urging, the Business Roundtable formally adopted this broad sense of responsibility for all of its member companies. While this view was modestly 'qualified' by the Roundtable in 1997, it wasn't until 2004, in this current post-Enron age of selfishness, that it was completely abandoned by the Roundtable to favor only insiders and shareholders. Against this long, sensitive history, it's particularly hard to condone today the myriad tax avoidance efforts by GE and others that now rob our Treasury of its due and the middle class of the tax fairness to which they're entitled.
I never thought I would hear myself saying this, but the single U.S. president who in recent administrations got it right when it came to closing unwarranted corporate tax loopholes, especially the massive overseas taxation loophole, was Ronald Reagan, who supported changes that closed those loopholes and immediately led to GE and companies with similar tax practices to pay far higher effective rates, up to 32.5%.
And what do we hear from Mr. Obama, in sharp contrast to Mr. Reagan? Well, that Mr. Immelt "understands what it takes for America to compete in the global economy." With respect, Mr. President, a lot of us would beg to differ -- and differ a lot.
Since the start of the Great Recession of 2007 we've read often about the more than $2 trillion that has accumulated in the treasuries of the nation's major companies awaiting investment. I've written, as have others, that the administration and Congress need to put in place the incentives, tax policies and overall environment that would incentivize these companies to use these reserves to help create the millions of jobs needed to dig our economy out of the near jobless malaise it's mired in. But as Jason Zweig rightly pointed out in the Wall Street Journal , "much of that cash isn't in the U.S.; it is abroad." In fact, of the companies in the Standard & Poor's 500-stock index, "north of $1 trillion in undistributed foreign earnings or profits has been parked overseas to avoid U.S. taxes," much of it by now in illiquid 'American jobs-stealing' foreign factories that can't easily be repatriated.
For example, as Mr. Kocieniewski identified, for years even GE's abysmally low reported U.S. tax burden has been overstated because it includes taxes that will be paid only if the company brings its overseas profits back to America. As GE has expanded abroad, the portion of its profits intentionally steered to low-tax countries such as -- give us a break! -- Ireland and Singapore simply to avoid taxes has grown far faster than any associated revenues. Thus, over the last three years, although 46% of the company's revenue was in the U.S., only 18% of its profits were because of its offshore tax schemes and its 'transfer pricing' between and among its foreign offices, which has no economic justification.
Despite its CEO now being chairman of Mr. Obama's Council on Jobs, GE, since 2002, has in fact eliminated fully 20% of its American workforce while increasing overseas employment -- in that relatively short time, GE's accumulated sheltered offshore profits have, no surprise, risen from $15 billion to an almost unbelievable $92 billion. So when Mr. Immelt says that "GE's tax breaks protect American jobs" while he continues to ship high-quality American jobs to China and elsewhere and that he wants "reform of the U.S. tax code" while defending his company's tax schemes, it just doesn't compute.
By far the best analysis of the biggest of the ongoing abuses of our corporate tax system has been done by Peter Coy and Jesse Drucker of Bloomberg Businessweek (March 21-27, 2011) in an amazing piece of journalism entitled "Apple, Google May Profit on a Tax Holiday."
Coy and Drucker started off by tracing the sad evolution of Mr. Obama's consistent campaign pledge to "end tax breaks for companies that ship jobs overseas" to its abandonment on February 11 in the direction instead of the U.S. Chamber of Commerce-sponsored 'corporate tax code overhaul' that would be silent on this issue while at once giving these same companies yet another temporary 'tax holiday.' This so-called holiday would repatriate profits attributed to foreign operations at a 5.25% tax rate instead of the usual 35% rate, despite the fact that, according to several independent economic studies, a nearly identical holiday passed by Congress in 2004 ultimately repatriated a staggering $312 billion at the reduced tax rate while doing little or nothing to boost jobs or investment.
What we need as alternatives from the president, from his Council of Jobs and Competitiveness, and from Congress are:
President Obama says we have to retool our economy to "win the future." A key pillar of this initiative must be a corporate tax policy that helps U.S. corporations grow and prosper, incentivizes job creation here at home, ensures that corporate America makes their fair contributions to the fiscal needs of our country, and will encourage the kind of responsible corporate leadership that will allow this country to responsibly lead the worlds' economies in the future.
Leo Hindery, Jr. is Chairman of the US Economy/Smart Globalization Initiative at the New America Foundation and a member of the Council on Foreign Relations. Currently an investor in media companies, he is the former CEO of Tele-Communications, Inc. (TCI), Liberty Media and their successor AT&T Broadband. He also serves on the Board of the Huffington Post Investigative Fund.
Follow Leo Hindery, Jr. on Twitter: www.twitter.com/leohindery
Since the 98% outnumber the 2% getting the biggest breaks, it doesn't make sense for congress to favor their breaks especially when unemployment is more than 5%.
Must be the difference between democracy and a republic.
Do you want "evolutionary" change, as proposed by Pres. Obama, or do you want "revolutionary" change?
Floating an interest-free loan to the corruption that has taken over the US Government does not seem to be in the US taxpayers' best interests.
Perhaps the problem is the president isn't informed about people others recommend to him to take key roles. So maybe his inner circle needs correcting. The only explanation of why Jeffrey was chosen that I have heard is because he is a republican and thus pro-business. More like pro-Jeffrey. So was this appointment a favor? Payback? Like minds? Buddy elites? Who knows, but I assure you Leo that "us conservatives" do not like Jeffrey at all and for all the reasons you mentioned above. You can see however, that all the pressure to give Jeffery the boot have been ignored by this WH.
BTW, earlier in your article you mentioned that companies in the S&P 500 stock index did pay 30.5 percent avg in corporate taxes. If that is so how is it that corporate taxes have fallen as a percent of all revenue received over the years? Do you want corporations to pay higher than 30 percent?
I say make a deal with corporations and bring back that dough from overseas. But there is a caveat. They have 3 years to create jobs agreed upon between themselves and the government. Get them to sign a contract of intent and if they don't produce have a claw back clause and tax the h.... out of them. Hey, I could figure out an equitable deal that is realistic and fair for all. All I care about is creating good paying jobs and pulling this country up by its bootstraps and stop circling the drain.
Is there a law that requires the government use lobbyists? If not, let's ban them as was promised. I suspect that never happens because it is the lobbyists that write the bills and then legally interpret what they wrote to fit their agenda. So I am saying the lobbyists are smarter than the lawmakers and until that changes they will running circles around the best and brightest in Washington.
Something tells me that we'll see enough new jobs created that the market place minimum wage will rise substantially from where it is, and everyone who sincerely wants a job will have one.
Oh, and economic growth will be gangbusters.
We need to form workers into a co-op and launder the income through off-shore and Cayman Island banks. Then "We The People" can enjoy this loophole system that the Corporations have set up...
In a free and equal society obviously it's not wrong for the ordinary citizen to use the same loopholes? RIGHT???!?!?!? One year of ZERO taxes from the POOR and then the Govt may actually... no they WILL fix things... Of course they'll throw the 1,000s of average citzens in jail for trying this.... but what do we have to loose.... except a corrupt govt ????
NO TAXES in 2012 !!!!!!!!!!!!!!!!!!!!!!!!!!!!
Thanks for pointing out tax avoidance. It is a shame that 47% of the population pays no tax and 40% recieves more than it pays into the system. I am sure that your next article will point out the indignity of these free loaders getting a free ride off the backs of the other 53% of the population that is a prodcutive contributor to America.
Once we stop penalizing success and rewarding failure and sloth, we just might get this country up and running in teh right direction again.
Kai
You know what? The reality is that our entire defense budget returns basically no personal dividends for anyone in this country other than multi national corporations, and the ultra wealthy. With things like infrastructure spending, education, and health care, the rest of us are expected to content outselves with "trickle down", while the largest earners still refuse to pay their true fair share for the conditions that make this the one country on the planet that they choose to reside in.
What we need is a system of true "user fees" where, after every time a stealth bomber delivers a "package" overseas designed to remind all concerned who the top dog is, a guy from the Pentagon stops at every mansion in the country and hand delivers a bill for a few thousand bucks. And every time that a carrier task force visits the Presian Gulf, they should just expect to have their credit cards debited for a million.
If I have to pay a couple of bucks to drive over a bridge I already own, why should corporations be allowed to hire a newly minted tax lawyer without having to drop a small fortune into the common school fund for the privilege?
Thank you for pointing out an important fact, we benefit from having the rich in the United States. Bill Gates, after having started a company, created thousands of high-paying jobs, creating thousands of spin-off jobs in other companies, paying sales tax, payroll taxes, insurance, wages, and then paying business tax and corporate tax and finally capital gains taxes, he then opts to give his money to Charity. Warren Buffet the same! Another case for America to attract and support as many billionaires as possible since they create jobs and help the needy. In this case, a higher GINI coefficient is better!
Also thanks for pointing out the ridiculousness of our industrialized military complex. It is disturbing to me that provisions in many our government sourcing legislation that forces the military to buy from favored vendors and, more specifically, support unionized companies. It is really just a handover of wealth from the poor taxpayer to the entitled union rent seekers. We agree on so much.
Also, you make a good point about having to pay fees to drive over a bridge you won so big fat paychecks can be given out to public union employees and their rent-seeking management. These guys are bilking you out of millions in unnecessary fees.
Thanks again for pointing out how big government is taking from productive people like Mr. Gates and Mr. Buffet and wasting it to prop up politically favored union rent seekers.
You make good points.
Kai
They deleted your post because it was deemed insulting and violated their TOU. I read through it and found it a bit on the front foot but not so much as to be insulting.
Will endeavor to address your points, as follows:
I agree, I was not being ‘intellectually honest’ when I addressed you above post. I wasn’t trying to be. I was trying to cleverly point out that the issues you listed have a flip side, that could be easily taken and supported.
True, I threw in the unions, but again, when you start pointing out beneficiaries of government policies and just throw out the tired and specious ‘rich and multinationals are stealing everything and the poor get nothing’ talking point, I would be remiss if I did not point out that a lot of the government rent seeking and redistribution that is going on actually goes from the rich to the unionized rent seekers since the rich pay a bulk of the tax, not the poor. They also are the reason you pay to cross bridges, not the rich. Sorry if that does not compute with your world vision. But I am open to learning something new if you can back up your claims with any type of factual data. Everything I have seen points to runaway spending, and an over reliance on the rich, which already pay more than their fair share.
Finally, Gates and Buffet both support free and open markets. So do I.
Kai
Then everything that you've followed up with is unsupportable talk radio sloganeering. And you want me to legitimize your drivel by taking it seriously.
But here is one ironclad fact. The kind of unregulated markets you seemingly advocate (unless, of course you're engaging in more hyperbole) lead very commonly to monopolies, because the cost to buyout competititon routinely exceeds the cost to actually compete.
Here's another fact. "Free markets" absolutely fail in the absence of an informed consumer, and the existence of consumers with the level of sophistication required by our complex existence absolutely depends upon the sort of universal education which we now have, and which replaced the "free market" education system that you would like to go back to.
(Oh, and then there's the minor fact that the most "pure" free market in this country is pot, and my multi million dollar successes there ultimately only bought me a criminal conviction and 25 year sentence.)
A) Not sure that I admitted taking complete liberty with the truth:
http://www.macombdaily.com/articles/2010/04/08/news/srv0000007990149.txt
http://taxprof.typepad.com/taxprof_blog/2009/10/47-will-pay-0.html
http://www.pittsreport.com/2010/12/taxes-and-the-top-percentile-myth/
It is also important to note, that because of transfer payments, we incentivize people to stay poor. In effect raising their marginal income tax to a point that they lose money if they earn more money.
http://mises.org/daily/3822
B) The only monopolies in America are government sanctioned, such as public unions, utilities, etc. It implies that government intervention is a bigger problem with respect to monopoly creation than free markets are. So not sure how ‘ironclad’ your fact is
C) What free market has failed? The excessive amount of government intervention in the markets is responsible for every single market failure that has ever existed, & that applies to the Great Depression & Great Recession, which were primarily driven loose monetary policy & easy government credit, as well as bad policies created moral & financial hazards. Again, your assumed fact is wrong.
D) Actually pot is not the most ‘pure’ free market. The fact that it restricted by government laws, affects supply, which is what drives up the price, which is what helped you make your millions. If it was truly a free market, I could grow it & trade it whenever I wanted without government intervention. Again you are wrong.
Kai
Or the correlary, "The Tax Man Cometh - Just Mostly for Those Who Can Least Afford It."
And the rich and powerful become ever more so. Finance and Health Care suck up some 20% each of GDP, perhaps 10% each for Defense and Agriculture, and about another 10-15% for Energy leaving the dregs of this uber-unbalanced economy for the rest of industry, construction and us. That's about as unsustainable as as a toothpic in a forest fire. No one can rightly defend the status quo in the face of that, and yet they do with great vehemence.
Oh, my!