I paid more taxes on my blogging income than General Electric paid last year. That’s not because I make so much money blogging, but because GE literally paid no taxes for 2010. In fact, GE claimed $3.2 billion in tax benefits last year.
GE isn't doing badly. In fact, America’s largest corporation did just fine last year, earning $14.2 billion, including $5.1 billion on operations in the U.S.—considerably more than I make blogging. GE didn’t owe any taxes last year either, and has received a net tax benefit over the last 5 years. That’s not that completely surprising, since according to a 2008 GAO study two out of every three U.S. corporations paid no federal taxes at all.
Many of those companies, of course, owed nothing because they didn’t make any money, or took a net loss. GE managed to claim substantial tax benefits in spite of making billions of dollars by having a tax department of nearly 1,000 people—sometimes called the world’s best tax law firm—staffed with Treasury department and IRS officials. The company aggressively lobbies Congress for tax breaks and—like many multinational corporations—tries to “offshore” its profits by concentrating its costs in the U.S. and its profits in low-tax countries.
You can’t really blame GE for taking every tax break it can. GE hasn't apparently broken any law. I wish I could have found a legal way to pay no taxes myself. But it does make it hard to believe claims that we need to cut corporate taxes because the corporate tax burden is stifling American productivity. It’s true that the U.S.’ high marginal tax rate of 35% gives corporations an incentive to move operations offshore. President Reagan tried to change those incentives with the 1986 Tax Reform Act after learning GE was paying no taxes during his administration by closing loopholes and eliminating corporate tax breaks. But thanks to the lobbying of GE and other corporations, more loopholes and tax breaks found their way back into the tax code.
It may make sense to lower the nominal corporate tax rate, if we also eliminate tax breaks and make it difficult for corporations to avoid taxes by sending parts of their operations overseas. But don’t believe for a second that federal taxes are cutting into corporate profits, or that companies like GE are cutting workers because they aren’t doing well. Corporations certainly aren’t paying too much taxes, and we don’t need to lower the amount companies pay. As Jon Stewart said on The Daily Show, “I’m not sure you can lower it from nothing.”
Photo credit: Fletcher