After 8 years of the atrocious GW Bush Administration, many Americans equate corporate welfare and tax loopholes with conservativism. To dispel this notion, more conservatives need to join their progressive compatriots and raise hell when companies like GE use tax loopholes to pay zero dollars in taxes and follow their indignation with efforts to close these loopholes.
"But wait, aren't low taxes a fundamental tenant of conservatism?" you may ask.
Yes, across the board low taxes, fairly applied to all individuals, industries and enterprises is conservative. But, maintaining a tax regiment that combines high corporate taxes (yes, our rate of 35% is among the highest in the world) and a myriad of loopholes and subsidies for politically connected corporations and industries is not. To start off with, its an example of cronyism in which select corporations increase their influence over the government via their lobbying efforts. Such influence allows them to gain unfair advantage over their less connected market competitors. Granting politicians the power to exercise undue control over the economy by helping to choose which companies and industries become winners, is a departure from free market principles. And such actions ultimately increase the tax burden on the larger public.
Predictably, few politicians on either side will fight to create a simpler, less interventionist and burdensome tax code, because that would diminish their power to grant favors and gain campaign contributions.
GE: 7,000 tax returns, $0 U.S. tax bill
By Annalyn Censky, staff reporterApril 16, 2010: 11:52 AM ET
NEW YORK (CNNMoney.com) -- General Electric filed more than 7,000 income tax returns in hundreds of global jurisdictions last year, but when push came to shove, the company owed the U.S. government a whopping bill of $0.
How'd it pull off that trick? By losing lots of money.
The 2009 income tax bills for America's biggest companies ranged from $0 to $15 billion. Here's why.
GE had plenty of earnings last year -- just not in the United States. For tax purposes, the company's U.S. operations lost $408 million, while its international businesses netted a $10.8 billion profit.
That left GE (GE, Fortune 500) with no U.S. profit left for Uncle Sam to tax. Corporations typically face a 35% federal income tax on their earnings. Thanks to its deductions and adjustments, GE reported an actual U.S. federal income tax rate of negative 10.5%. It got to add a "tax benefit" of $1.1 billion back into its reported earnings.
"This is the first time in at least decades that GE has reported negative U.S. pretax income and it reflects the worst economy since the Great Depression," Anne Eisele, GE's director of financial communications, said via e-mail."
But what about the $10.8 billion profit overseas? GE is "indefinitely" deferring income tax payments on those profits, Eisele said.
It may seem like accounting magic, but it's completely legit.
GE isn't the only "Top 5" company on this year's Fortune 500 list that owed no income taxes. Bank of America (BAC, Fortune 500), which suffered major losses in 2009, included a tax benefit of $1.9 billion in its annual profit.
"That's one way of escaping taxes," said Scott Hodge, president of the Tax Foundation. "Companies get to deduct their losses, so if there's no earnings, then they pay no income tax."
But GE isn't exactly escaping all tax-related pain: The company paid almost $23 billion in taxes to governments around the world from 2000 to 2009, Eisele said.
Plus, paying the accountants to crank out 7,000 tax returns can't be cheap.
And then there's all the lawyers needed to defend those returns. GE filed tax paperwork in more than 250 jurisdictions around the world last year. "We are under examination or engaged in tax litigation in many of these jurisdictions," the company dryly notes in its annual report.
GE may not owe the IRS, but it still has to file -- and its filings are epic.
In 2006, as the IRS ramped up its corporate e-filing program, the tax agency actually issued a celebratory press release when it processed GE's tax return. On paper, the return -- the nation's largest -- would have totaled a massive 24,000 pages. But instead, the IRS was able to upload the 237 MB document in under an hour.
Reading it, though, is apparently taking a bit longer. The IRS is currently auditing GE's tax returns for 2003-2007.