The American Tax System, Brought to You By G.E.

If you haven't read The New York Times' lengthy investigation of how America's largest corporation, General Electric, avoids paying taxes, you ought to take a look, because it's a remarkable story. As the article says, "regulatory filings show that in the last five years, G.E. has accumulated $26 billion in American profits, and received a net tax benefit from the I.R.S. of $4.1 billion. How do they do it? In two ways: they have a large, skilled, and creative tax department whose job is to ferret out every loophole they can exploit; and they have a huge lobbying operation, which enables them to rewrite the tax laws to their benefit. Here's their lobbying data from the Center for Responsive Politics:

GE lobbying.jpg

That's a lot of money spent on lobbying (over $39 million in 2010 alone), but for a company like GE, lobbying is just about the most lucrative investment they can make:

By the time the measure — the American Jobs Creation Act — was signed into law by President George W. Bush in 2004, it contained more than $13 billion a year in tax breaks for corporations, many very beneficial to G.E. One provision allowed companies to defer taxes on overseas profits from leasing planes to airlines. It was so generous — and so tailored to G.E. and a handful of other companies — that staff members on the House Ways and Means Committee publicly complained that G.E. would reap “an overwhelming percentage” of the estimated $100 million in annual tax savings.

According to its 2007 regulatory filing, the company saved more than $1 billion in American taxes because of that law in the three years after it was enacted.

By 2008, however, concern over the growing cost of overseas tax loopholes put G.E. and other corporations on the defensive. With Democrats in control of both houses of Congress, momentum was building to let the active financing exception expire. Mr. Rangel of the Ways and Means Committee indicated that he favored letting it end and directing the new revenue — an estimated $4 billion a year — to other priorities.

G.E. pushed back. In addition to the $18 million allocated to its in-house lobbying department, the company spent more than $3 million in 2008 on lobbying firms assigned to the task.

Mr. Rangel dropped his opposition to the tax break.

There's some hope that in a second Obama term, we might take on comprehensive tax reform, which could, among other things, lower the corporate tax rate while eliminating these kinds of loopholes. I'd like to be optimistic about the prospects, but the problem is that a lot of very powerful companies like GE like the tax system just the way it is: absurdly complex, impossible for almost everyone (even, or perhaps especially, lawmakers themselves) to understand, and riven with opportunities ruthless tax lawyers can exploit. They will work very hard to make sure tax reform doesn't happen. After all, they're the ones who helped make the system what it is, and it sure works for them.

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