GE Puts Imagination to Work in its Tax Department

link here to article

I tell my students that there are two things that government does: They collect revenues from taxes and they spend the revenues. The best way to understand government is to figure out who they decide to take the money from and what they spend it on. This article on GE tells us some important things about where the tax money comes from. GE's tax department is regarded as one of the best in the business. This article describes how GE was able to get a $4 billion tax refund on top of its operating profits last year. One of GE's tactics is to arrange things so that its profits are concentrated in low tax off shore countries like Ireland and Singapore. Most multinational corporations operate in a similar way. The result is that the share of US taxes paid by US corporations has fallen from 30% in the mid 1950's to only 6.6% in 2009. At the same time corporate lobbyists are complaining that the corporate tax rate needs to be reduced in order to make corporations more competitive with overseas companies that have lower corporate tax rates. They argue that this will help to create jobs and many of our politicians agree with that argument. GE, which receives a tax rebate instead of paying taxes has reduced US employment by 20% in the meantime.

Some people will applaud GE and its tax department for being so good at what it does that it is regarded within GE as a profit center. They should consider the consequence, however, when multinational corporates like GE pay lower taxes or no taxes, the rest of us pay higher taxes or the government runs budget deficits. This shifts the tax burden to domestic corporations that do not have off shore tax havens, and to individuals who do not pay millions in lobbying to shift the tax burden to others.