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| CTJ graphic |
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| NYT |
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| Obama and Immelt inspect GE's tax loophole. |
Over the 2008-10 period, our 280
companies earned almost $1.4
trillion in pretax profits in the
United States. Had all of those profits
been reported to the IRS and taxed at
the statutory 35 percent corporate tax
rate, then the 280 companies would
have paid $473 billion in income taxes
over the three years. But instead, the
companies as a group paid only about
half that amount. The enormous
amount they did not pay was due to
the hundreds of billions of dollars in
tax subsidies that they enjoyed.
companies earned almost $1.4
trillion in pretax profits in the
United States. Had all of those profits
been reported to the IRS and taxed at
the statutory 35 percent corporate tax
rate, then the 280 companies would
have paid $473 billion in income taxes
over the three years. But instead, the
companies as a group paid only about
half that amount. The enormous
amount they did not pay was due to
the hundreds of billions of dollars in
tax subsidies that they enjoyed.
The report fingers GE and 29 other companies among the 280 surveyed as paying zero or less taxes on an aggregate pre-tax profit of $160 bil over the three-year period.
2009 was a particularly banner
year for non-payment of taxes. In
that year, 49 companies paid zero
or less in federal income taxes.
These 49 companies, one out of six
of the companies in the study, told
their shareholders they earned
combined U.S. pretax profits in
2009 of $78.6 billion, yet they received
tax rebates totaling $10.8
billion.
# In 2008, 22 companies paid no
federal income tax, and got $3.3
billion in tax rebates. In 2010, 37
companies paid no income tax, and
got $7.8 billion in rebates.
year for non-payment of taxes. In
that year, 49 companies paid zero
or less in federal income taxes.
These 49 companies, one out of six
of the companies in the study, told
their shareholders they earned
combined U.S. pretax profits in
2009 of $78.6 billion, yet they received
tax rebates totaling $10.8
billion.
# In 2008, 22 companies paid no
federal income tax, and got $3.3
billion in tax rebates. In 2010, 37
companies paid no income tax, and
got $7.8 billion in rebates.
General Electric paid zero tax on 08-10 profits of $10.46 bil; 08-10 tax: minus $4.737 bil; 08-10 tax rate: minus 45.3%. Year-to-year:
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| Obama and Immelt Jan. 2011. |
- Jeff Immelt is named chairman of Obama's Council on Jobs and Competitiveness Jan. 21, 2011.
- GE's profits rise in 2010, gets $3.2 bil federal tax credit: General Electric $4,248 bil; –$3,253 bil; –76.6%
- 2009: General Electric $1,574 bil; –$833 bil; –52.9%
- The same year GE CEO Jeff Immelt's ascends to President-elect Obama's economic advisory board -- 2008: General Electric profits $ 4,638 bil; –$651 bil; –14.0%
General Electric, Current Taxes,
Cash Taxes & Uncertain Tax Benefits
When a brilliant article by David Kocieniewski
in the New York Times in May of this year
exposed GE as a champion tax dodger, the
company begged to differ. “In 2010,” said GE,
pathetically, “we paid a small amount in federal
income taxes.”
According to GE, the New York Times had
counted as “tax benefits” in 2010 (leading to a
stated huge negative tax in that year), tax
reductions that the company had actually
received in earlier years. GE said it had not
revealed those earlier tax benefits on its books
in the earlier years because it had expected
that the IRS would disallow GE’s improbable
claims, and thus GE expected to be required to
pay the money back later (with interest).
But as it turned out, GE implied, in 2010
the IRS decided that GE could get to keep
some of the unpaid income taxes that GE had
expected to have to pay back. So, under
standard accounting rules, GE booked the tax
benefits in 2010. At least this seems to be GE’s
story.
Even if true, of course, that meant that GE
really did get the tax breaks. It just hadn’t
bothered to tell anyone about them until 2010.
Which is arguably quite reasonable, since GE
expected it would have to pay the money back.
Counting the tax breaks as received in 2010 (as
“current” taxes do) makes sense, because
that’s the year that GE was really entitled to
keep the money.
In any event, a frantic GE (along with some
grumpy reporters) argued that the Times would
have been better advised to look at GE’s “cash
income taxes paid” rather than its “current”
federal income taxes. The problem, however,
is that companies do not break down their
“cash income taxes paid” between U.S. and
foreign taxes. That makes “cash income taxes
paid” pretty much useless in measuring what
companies actually pay to the U.S. government.
Except for one thing. Companies are
required to keep track, in a confusing way, of
their “uncertain tax benefits.” These are taxes
that the companies did not pay, but expect to
have to pay in the future once various
governments audit their tax returns. These
“UTBs” are almost never broken down geographically.
But in its 2010 report, GE admitted
that all or almost all of its UTBs reflect U.S.
federal income taxes not paid. (The
non-US-federal portion of the UTBs, GE said,
are not “material.”)
Since over time, the difference between
worldwide “current” income taxes and “cash”
income taxes is almost entirely due to
“uncertain tax benefits,” this admission by GE
allows a diligent analyst to find out something
very interesting about GE’s federal income
taxes (if one thinks that “cash income taxes
paid” is the best measure).
Over the past 10 years (2001-10), GE’s
reported that its total worldwide “cash”
income taxes paid have been $3.3 billion less
than it reported in total federal, state and
foreign “current” income taxes. Meanwhile, GE
says that at the end of 2010, its worldwide
“unrecognized tax benefits” totaled at least
$4.1 billion.
If, as GE seems to say, all or almost all of
that $4.1 billion reflects unrecognized U.S.
federal tax benefits, and one subtracts the $4.1
billion from the $2.6 billion in “current” federal
income taxes that GE reported over the 10
years (already a tiny 3.1 percent U.S. federal
10-year tax rate), here’s what one finds:
From 2001 through 2010, GE’s U.S. net
federal cash income taxes paid appear to have
been less than zero!
So, if we accept GE’s suggestion to look
deeper, it seems that the New York Times may
have slightly understated the vast scope of GE’s
tax avoidance over the last decade. But the
Times certainly got the gist absolutely right. Or,
if one thinks that uncertain tax benefits
shouldn’t be counted until they’re actually
allowed (our position), then the Times got the
story perfect.
Cash Taxes & Uncertain Tax Benefits
When a brilliant article by David Kocieniewski
in the New York Times in May of this year
exposed GE as a champion tax dodger, the
company begged to differ. “In 2010,” said GE,
pathetically, “we paid a small amount in federal
income taxes.”
According to GE, the New York Times had
counted as “tax benefits” in 2010 (leading to a
stated huge negative tax in that year), tax
reductions that the company had actually
received in earlier years. GE said it had not
revealed those earlier tax benefits on its books
in the earlier years because it had expected
that the IRS would disallow GE’s improbable
claims, and thus GE expected to be required to
pay the money back later (with interest).
But as it turned out, GE implied, in 2010
the IRS decided that GE could get to keep
some of the unpaid income taxes that GE had
expected to have to pay back. So, under
standard accounting rules, GE booked the tax
benefits in 2010. At least this seems to be GE’s
story.
Even if true, of course, that meant that GE
really did get the tax breaks. It just hadn’t
bothered to tell anyone about them until 2010.
Which is arguably quite reasonable, since GE
expected it would have to pay the money back.
Counting the tax breaks as received in 2010 (as
“current” taxes do) makes sense, because
that’s the year that GE was really entitled to
keep the money.
In any event, a frantic GE (along with some
grumpy reporters) argued that the Times would
have been better advised to look at GE’s “cash
income taxes paid” rather than its “current”
federal income taxes. The problem, however,
is that companies do not break down their
“cash income taxes paid” between U.S. and
foreign taxes. That makes “cash income taxes
paid” pretty much useless in measuring what
companies actually pay to the U.S. government.
Except for one thing. Companies are
required to keep track, in a confusing way, of
their “uncertain tax benefits.” These are taxes
that the companies did not pay, but expect to
have to pay in the future once various
governments audit their tax returns. These
“UTBs” are almost never broken down geographically.
But in its 2010 report, GE admitted
that all or almost all of its UTBs reflect U.S.
federal income taxes not paid. (The
non-US-federal portion of the UTBs, GE said,
are not “material.”)
Since over time, the difference between
worldwide “current” income taxes and “cash”
income taxes is almost entirely due to
“uncertain tax benefits,” this admission by GE
allows a diligent analyst to find out something
very interesting about GE’s federal income
taxes (if one thinks that “cash income taxes
paid” is the best measure).
Over the past 10 years (2001-10), GE’s
reported that its total worldwide “cash”
income taxes paid have been $3.3 billion less
than it reported in total federal, state and
foreign “current” income taxes. Meanwhile, GE
says that at the end of 2010, its worldwide
“unrecognized tax benefits” totaled at least
$4.1 billion.
If, as GE seems to say, all or almost all of
that $4.1 billion reflects unrecognized U.S.
federal tax benefits, and one subtracts the $4.1
billion from the $2.6 billion in “current” federal
income taxes that GE reported over the 10
years (already a tiny 3.1 percent U.S. federal
10-year tax rate), here’s what one finds:
From 2001 through 2010, GE’s U.S. net
federal cash income taxes paid appear to have
been less than zero!
So, if we accept GE’s suggestion to look
deeper, it seems that the New York Times may
have slightly understated the vast scope of GE’s
tax avoidance over the last decade. But the
Times certainly got the gist absolutely right. Or,
if one thinks that uncertain tax benefits
shouldn’t be counted until they’re actually
allowed (our position), then the Times got the
story perfect.
CTJ press release
Gee, are you suggesting that, just because Obama and Immelt have met, that maybe special favors are handed out? I'm shocked.
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