Our Tax Compass Needs Recalibrating

By Bill Visnic March 29, 2011

GE HQ.jpg

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 Electric’s 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, today’s 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 Union’s 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, Chrysler’s former ownership – prior to the company’s bankruptcy – also was a partnership and apparently losses incurred by those owners will be allowed to be carried forward in a fashion similar to GM’s 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 nation’s 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 nation’s 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 nation’s largest company, is able to zero-out its tax bill, but let’s face it – the story doesn’t 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 November’s 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 GM’s 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 there’s real effort toward tax reform, it’s 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 Mulally’s, 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, it’s hard not to see her point.

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bc1960 says: 6:17 PM, 03.29.11

Well, GE has been consistently profitable for years, while GM and Chrysler had losses, whether or not you agree with their being able to survive the shedding of liabilities in bankruptcy. And GE doesn't just exploit the tax code, they employ an army of effective lobbyists including former Treasury officials and congressional aides to obtain tax provisions which benefit them specifically, but but not necessarily others. They are apparently uncommonly effective at gaming the overseas revenue provisions and resulting US tax offsets.

It must be acknowledged that business taxes are a cost which is passed on to others in the form of higher prices, and therefore we might be better off without them, or with a VAT system instead of income and profit taxes. OTH, one wonders whether GE's lower costs resulting from low or no taxes are passed on to their customers, or are a windfall to their employees and stockholders.

blueguydotcom says: 8:46 PM, 03.30.11

Forbes listed the top earning companies in the US:

http://www.forbes.com/2010/04/01/ge-exxon-walmart-business-washington-corporate-taxes_slide_3.html

Some reported 100+ billion in revenue but still only a few billion in profit, so relatively low taxes paid. Yeah, that's after all the byzantine deductions that effectively hide profit. You really believe Mckesson only made 1 billion in profit? That's the billion they couldn't hope to hide.

bmw__m5 says: 5:38 PM, 03.31.11

I am a very sucessful surgon and make well beyond that of the average American (see upper six figures). I just got finished doing my taxes and even paying the ATM, I am still taxed 72.75% of income (between house, state, fed, sales etc.). That's just plain ridiculous. Do you think the government is worth 73% of your income?

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