Our Tax Compass Needs RecalibratingBy Bill Visnic March 29, 2011
Quite the dust-up last Friday when the New York Times reported giant multinational General Electric paid zero U.S. taxes last year. The subsequent discourse most of it outraged got downright entertaining this week when GE set to damage-controlling the uncomfortable revelation and the convoluted splainin mostly made the company appear more guilty.
General Electrics embarrassing position reminded me that General Motors Co. mostly dodged this same bullet last winter when the Wall Street Journal reported that thanks to a favorable and questionable Internal Revenue Service ruling about its ability to leverage losses accrued by the old GM, todays company will be able to offset scores of billions in ongoing profits.
I asked a Chrysler Group LLC spokesperson whether the company mostly owned by the United Auto Workers Unions retired-employee trust and Fiat Auto will pay any corporate income tax this year. The answer: Chrysler has yet to generate any profits to worry about offsetting but, As a partnership, income/loss flows through to our owners (partners) who would pay the taxes.
Moreover, Chryslers former ownership prior to the companys bankruptcy also was a partnership and apparently losses incurred by those owners will be allowed to be carried forward in a fashion similar to GMs treatment from the IRS. I suspect it will end up being marginally more complicated than that, but a sufficient answer for now.
Tales of income-tax inequity always are popular nearing the April 15 filing deadline, but this time around, the political impact runs deeper given the nations heightened sensitivity about the equality of federal collecting and spending and the influence-peddling that runs rampant through the broken system.
Whether you believe GE is a reprehensible company for fully exploiting this nations tragically Byzantine tax code or you question the legality of GM being given the ability to selectively apply the best and worst of the bankruptcy process, the discussion inevitably circles back to a politics-versus-ethics formula. It may be wrong that GE, our nations largest company, is able to zero-out its tax bill, but lets face it the story doesnt allege GE came by this happy position dishonestly. One of the most startling disclosures in the Times story is that GE employs nearly 1,000 souls just in its tax department.
For GM, last Novembers largely-overlooked story about the company being allowed to retain tax-loss credits that should have been sharply restricted or lost altogether after its federal bailout and subsequent bankruptcy gave credence to criticism that GMs restructuring was unduly and unfairly structured by power politics. Determining the ethical righteousness of the current corporate tax code is a complex issue, but until theres real effort toward tax reform, its tough to get too worked up about any company or individual trying to wring out the most from what everybody regards as a bogus institution.
My 1040 probably is less complicated than Alan Mulallys, but I nonetheless employ the services of a certified public accountant to determine my tax obligation. Why? I rely on his expertise to get me the best deal with the IRS. Should corporations approach it any differently?
Hotel magnate Leona Helmsley infamously quipped, Only the little people pay taxes. Until we get a tax structure we all can respect, its hard not to see her point.