GE and Taxes

March 28, 2011

Update: March 28, 2011: Our story, “More on GE and Taxes,” provides the latest update.

Recently, some news stories have suggested that GE owes no income tax or questioned why GE’s consolidated tax rate in the last few years has been lower than historical levels and lower than the U.S. statutory rate. These stories have grossly simplified the facts concerning GE’s recent tax rates. An article in today’s New York Times (“At GE on Tax Day, Billions of Reasons to Smile”) presents a particularly distorted and misleading account of GE tax payments. A few facts about GE missing from the Times story:

GE pays what it owes under the law and is scrupulous about its compliance with tax obligations in all jurisdictions. We are committed to acting with integrity in relation to our tax obligations. At the same time, we have a responsibility to our shareholders to reduce our tax costs as the law allows.
Significant losses at GE Capital during the financial crisis, largely in the United States, reduced GE’s overall tax rate below historic levels the past few years. Those losses and the subsequent reduction in taxes owed is not a “tax avoidance” strategy. Taking out GE Capital makes GE’s effective tax rate 21% over the past several years. GE’s consolidated (or overall) effective tax rate prior to the financial crisis was in the teens to more than 20%.
GE’s industrial tax rate averages well above 20% historically. In 2010, the tax rate for GE’s Industrial businesses was 17%, lower than historical levels due largely to settlements in routine tax audits that reduced our rate by almost 5 points. Excluding the benefit from audit resolutions for previously booked taxes, and restructuring and environmental charges, GE’s Industrial tax rate would have been about 23% — in line with historical averages
GE’s tax rate will be higher in 2011. In 2011, we expect a higher tax rate as GE Capital continues to recover, the one-time factors that reduced 2010 are not expected to repeat, and because we expect higher taxes on the sale of NBCU.
GE paid almost $2.7 billion in cash taxes in 2010 on a consolidated basis (almost 19% of pretax income from continuing operations).
GE paid significant U.S. income tax in 2010 and in total from 2006-2010. Over the past 10 years, GE has paid almost $23 billion of corporate income taxes to governments around the world, making it one of the highest payers of corporate income taxes. As disclosed in the cash flow statements of the 10-K, we paid over $14 billion of income taxes to governments around the world over the past 5 years.
A tax “benefit” is not a refund or a rebate. GE did not receive payment back from the government as a result of the tax benefit. The “tax benefit” reported in our financial statements was the “U.S. current tax provision on continuing operations” which is a book accounting concept and is not the same as our cash tax liability or cash tax payments. There was a benefit in our current tax provision because we didn’t end up owing taxes we had accrued in prior years. This tax benefit resulted from reversing the taxes we had accrued in prior years, but much of this benefit was offset by increases in our tax liability for future years.
The Times erroneously suggests GE makes use of tax “loopholes” or “innovative accounting.” Our accounting and tax positions fully comply with all applicable rules and regulations and are based on sound public policy. Virtually all major industrialized countries tax only domestic, not foreign business income. In the United States, there is a similar concept, called deferral. Deferral for active non-U.S. financial services income has been a long-standing feature of U.S. law, except for a brief period of time. Due to government budget constraints, it is now subject to periodic expiration, but it has been renewed by the Congress and U.S. Presidents with strong bipartisan support six times. GE supports this sound policy, which is aligned with international norms and is vital for U.S. competitiveness.

Here are some other facts about GE’s taxes:

In addition to corporate income taxes, GE pays many other taxes including payroll taxes on the wages of our employees, property taxes, sales and use and value added taxes. These so-called “indirect” taxes are accounted for as part of GE’s operating expenses but are a significant source of funding for U.S. federal, state and local and foreign governments.
Over the past decade, GE’s global growth has increased, as reflected in the percentage of our global revenue and income — and this results in lower taxes from operations in countries with lower tax rates than in the U.S. While GE has been, and continues to be, one of America’s leading exporters, competing globally often requires a local presence and, in many cases, local business partners.
GE competes against strong global companies, many of which are headquartered outside the U.S. It is essential that the U.S. tax system remains competitive, including on financial services. Reducing the rate of income tax on global operations helps GE stay competitive in non U.S. markets and global success, in turn, increases U.S. exports and jobs.
Since 2009, GE has announced the creation of more than 6,300 new U.S. manufacturing jobs, which will bring to nearly 50,000 the number of GE employees working to produce American-made goods the company sells around the world as part of its $17 billion-per-year in U.S. exports.

* For more on GE’s taxes, please see pp. 31-34 in our 2010 10K filing, available here: http://www.ge.com/investors/financial_reporting/index.html

* Read excerpts from GE’s response to The New York Times’ David Kocieniewski regarding GE Taxes

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Jeff

In the past 10 years, GE has laid off 34,000 American workers while adding 25,000 jobs overseas (where they can pay far, far lower wages) and currently employees roughly 36,000 more workers abroad than it does in the U.S. Like most major multinational corporations (and GE is definitely among the world’s largest and most wealthy), the real wages paid to GE employees has remained relatively stagnant over the past few decades, while their profits have climbed enormously. If all that profit isn’t being paid to the workers who created the wealth in the first place, where is it going? It’s going to their executives through enormous salaries and through campaign contributions and lobbying– buying off politicians who will then make the laws (including tax laws) in the interests of GE and other corporations. Yes, we should be angry at the government, but we should also be angry at GE, other corporations, and the pretty much the entire political-economic system. Blaming it on “progessives,” “liberals” or “conservatives” only plays into the hands of the elite, who want us–the “poor, dumb masses”–to squabble amongst ourselves while they rip us off. The above statement, very carefully and craftily worded, isn’t really fooling any of us, is it? Why should we take GE at it’s word? Why should we take any entity whose sole purpose is profit-maximization (the heck with human beings and the planet) at its word? And it’s not as if GE is the only corporation accused of dodging taxes. The General Accountability Office reports that up to 2/3 of U.S. corporations play the same shell games, using overseas tax havens. We have a major systemic problem here people. And to the slick PR folks who wrote the above piece: give me a break.
Danielle Merriam

hey the tax rate needs to be 9.00
MassARTMom

@ GE…..you are suspect in this nightmare we, the American taxpayer, are experiencing….if your behavior were on the up-and-up, you wouldnt be the target of such frustration. Is it that impossible for you to understand your responsibilities to this society. A society that has given you all the pleasures you enjoy today. Shame on Corporate for not contributing your fair share.
JeromeFJ

@Jeff 4:50pm

Or…you could learn how to read a financial statement, which is actually available on the GE.com website, and stop your whiny communist “proletariat masses being oppressed by the military industrial complex” conspiracy victimhood. GE pays taxes, lots of them. They spend real money making sure they don’t pay more than they need to, and they spend money supporting politicians who are committed to helping business succeed in our country.

You have exactly one vote in every election. Spend it wisely.
Ed K

No where does the GE response indicate the amount of Federal INCOME Taxes that GE has paid to the United States! They probably paid State Income Taxes but the question has been raised regarding FEDERAL INCOME Taxes. Notice how GE skirts that question with their carefully phrased response.
Chuck

How much of GE Capitals losses were subsidized and covered by taxpayers through TARP and Federal Reserve buyback programs? GE wrote off the losses, took the tax benefit and then recieve funds through the Federal Reserve through their buying back GE Capital’s bonds at inflated values. sounds like a “win win” for GE to me and a “lose lose” for the taxpayer.
JCT

IF YOU WANT TO KNOW WHO THE G.E. PEOPLE PAY OFF, JUST LOOK AT THE WAYS AND MEANS COMMETTE. THEY WRITE MOST OF THE TAX LAWS. A REAL EYE OPENER.
jay marx

I would be surprised if (m)any of the ranting blitherers in this space (oops, redundant) have taken the time to intelligently vote(typical turnout 28%) or proactively plan their finances within an insanely corrupt tax system, or do the least thing about the REAL enemies of our economic way of life (see the RollingStone article “RealHousewives of Wall St.” and the “CRASH COURSE” videos at http://www.ChrisMartenson.com) . Before whatever taxes are or aren’t applied, GE wouldn’t have a penny but for competitively providing goods and services for willing customers. Ranting is so much easier than action. I can’t remember who to credit for the experiment about rats in a cage attacking each other under stress instead of finding a exit, but I can already anticipate the replies. -Ouch! Ouch! Ouch!–
Todd T.

What if we abolished corporate income taxes altogether? Before you label me as a rich elitiest, I’tll tell you that I’m neither rich, nor a business owner. Let’s face it, corporations aren’t people. They are entities. When their owners or shareholders take profits out of the business that money is taxed because it becomes income. If they take a lot of money out, they pay alot of taxes. If there were no corporate taxes, the owners or shareholders could also decide to reinvest profits in the business which typically creates more jobs instead of taking the money out of the business as income or dividends. Our tax burden on corporations is the highest in the industrialized world (if you count state taxes). Is it any wonder that companies look to deploy assets in places in the world where the tax burden is lower?
Robert

I have tremendous respect for G.E. America should be proud of it, and encourage more great companies like it.

Taxes are simply too complicated. http://noonmeasurec.blogspot.com
Zach

Methinks the giant multinational corporation doth protest too much…
Paul

In 1959 corporations paid 30% of total taxes and individuals paid 54%, in 2009 corporations paid only 6% of total taxes and individuals paid 84%. So all you apologists for corporations probably feel that is equitable. The richest 3% of our population controls 90% of this nation’s wealth, and they want more. Read the handwriting on the wall, we the American people are being sold out by our politicians, and corporations that began here are selling us out to the New World Order. Soon our incomes will be equalized with workers in third world countries, they up a little, ours plunging. Who will buy all those cheap products when there is only enough income to minimally feed, clothe and house the family. Corporate AMERIKA wants total control of our gov’t and us. People who are willing to give up their freedoms for security will get neither in the end.
JoeCorr

Todd T april 24,

Thanks for your terrific comment about letting Corporations pay taxes through hiring employees that will pay the taxes on their earnings. I know most of these commenters will be repulsed at this concept because they don’t understand how free enterprise really works. It could be that many of our current population had been raised up without a Daddy, and are looking for one in the Govmt.
CPA

The accounting principle (GAAP) that the author mentions is known as FAS 109, or income tax accounting. As a Highly-skilled CPA that is trained in this technical area, the assertions do make sense. One must further understand the overall worldwide corporate structure and the foreign tax credit positions, anti-deferral issues (Subpart F regulations), etc. The idea of a multi-national company using offshore tax havens is a media propaganda tool. Statutes and regulations are in place since the Kennedy administration (the real Kennedy) to prohibit this.

Basically, this is far too technical for a few talking points from either the left, far left, the right or the MSM. Great job distorting the facts again…. Let’s use this article as an example of how MSM, Obama, and everyone else are using class warfare as a political means. I bet none of them can do a simple 1040, not to mention understanding foreign tax credits, FAS 109, or anti-deferral regimes.

HOWEVER, I’d love to know more about the federal subsidies that GE and every other company receives.
REAL TRANSPARENCY: Every subsidy given to anyone should be public information and subject to public scrutiny. See the Serious Materials debacle:

(http://stossel.blogs.foxbusiness.com/2010/01/14/a-little-company-praised-by-president-obama/).

Many of you may loathe Fox News or Faux News, but Mr. Stossel is accurate in this story. I see this quite often in companies.

Thanks for reading.
CPA

Commenting on below April 27, 2011.

Paul,
Well written; however, there are a few other major facts to consider. The year of 1954 was a big year in federal taxation as it introduced the IRC of 1954. I was not even close to being alive, conceived or even thought about but there are many fundamental differences.

1. Many small (under $1,000,000 gross revenue) to mid sized (under $500,000,000) are organized under the current tax code as S-Corporations and a few as partnerships, LLC’s, LLPs or other type of partnership entities dictated by state law. The issue and fallacy with your statistic proves the exact opposite. Corporations, otherwise known under the IRC as C Corporations were the most tax efficient structure in the 1954 era. That is why most of the tax was paid by C corporations. Now, the most tax efficient structure for a privately-held firm is in fact the S corporation or partnership. They are FLOW THRU entities and do not pay tax. The income tax is paid by the shareholders. basically, your statistic is meaningless other than it clearly illustrates the point that owners of firms changed to a more tax efficient structure.

Again, such lack of understanding is fueling the class warfare. And yes, I AM RICH! I put myself through college, worked 80 hrs per week for many years, started a very successful firm and now I am reaping the benefits. Oh ya, I’m also a kid from the Ghetto. If I can do it, everyone can do it!!!

“Paul says:
April 27, 2011 at 2:27 pm

In 1959 corporations paid 30% of total taxes and individuals paid 54%, in 2009 corporations paid only 6% of total taxes and individuals paid 84%. So all you apologists for corporations probably feel that is equitable. The richest 3% of our population controls 90% of this nation’s wealth, and they want more. Read the handwriting on the wall, we the American people are being sold out by our politicians, and corporations that began here are selling us out to the New World Order. Soon our incomes will be equalized with workers in third world countries, they up a little, ours plunging. Who will buy all those cheap products when there is only enough income to minimally feed, clothe and house the family. Corporate AMERIKA wants total control of our gov’t and us. People who are willing to give up their freedoms for security will get neither in the end.”
Harry

Neither GE’s carefully worded “response” nor any of the comments on either side of the issue changes the fact that GE paid less US Federal income tax on its billions of dollars of 2010 income than I paid on my $150,000 income. As CPA says “Basically, this is far too technical…” suggesting, as I have no doubt, that he is one of the select few that are privy to arcane knowledge. But isn’t that precisely the problem? Our corrupted system allows corporate lobbyists to jigger the tax code pretty much however they and their “bought and sold” legislators want. No wonder it takes an accounting degree to even begin to figure out how it all works. I have no doubt whatsoever that it is all “legal” – but that does not make it right! Bring on the flat tax, eliminate all loopholes, credits, incentives etc. then forbid any changes to the tax code, especially those inserted in unrelated legislation.
NBeck

Todd T. says:
April 24, 2011 at 5:37 pm
What if we abolished corporate income taxes altogether? Before you label me as a rich elitiest, I’tll tell you that I’m neither rich, nor a business owner. Let’s face it, corporations aren’t people. They are entities.
***********************************8

Except, Todd, they ARE people when it comes to campaign contributions. Thank you SCOTUS.
Dick

I guess those comments abut the taxes corporations generate through taxes on employee earnings might make sense if U.S. corporations were doing most of there hiring within the U.S. But they are not. Whenever possible they move jobs over seas. Ergo, no employee federal income or workmans compensation taxes. U.S. international corporations are U.S. in name only.
Bob

G.W. Bush signed TARP into law. G.W. Bush and his Repub. pals in Congress got rid of a lot of regulations on Wall St. / credit card companies / investment bankers. GE Capital got bailed-out! Has that bail-out money been paid back? The two wars, Afghanistan and Iraq, are costing about a Billion a week! Does GE or any of its subsidiaries have any contracts for these wars? Middle-class Americans have a right to know why giant corporations pay little or no FEDERAL taxes! Did the laws that allow this outrage get created by politicians who got huge campaign contributions from the affected owners of these corporations? How about what G.W. Bush did for Ken Lay and ENRON? How about Cheney’s Halliburton and the Billions in contracts for the wars in the M.E.? Do you suppose the $32 million Cheney got as a going-away present from Halliburton had anything to do with Halliburton-KBR getting those Iraq contracts? What about the over 1 billion of U.S. taxpayers money given to Halliburton-KBR that has gone missing in Iraq? Where’s the investigation? MY TAKE on the GE statements above: CORPORATE SMOKE and MIRRORS!
Justin Bianchi

If a company, such as GE, suffers a loss, that loss can be offset against future income. This is merely a question of fairness. Why tax a company on income, and not recognize a loss in the succeeding year?

GE paid reduced taxes in 2010 because of enormous losses in 2009.

Duh.

This is fair play by any standard.
Nancy B.

GE: Don’t expect my family to buy ANYTHING made by GE!!!
Kevin

To all of you who think GE is somehow getting away with something, I take your wacked out socialist agenda elsewhere. GE happens to be among the top employers in America. They create jobs, they pay tons of payroll tax, they pay their suppliers, partners and advertisers, and they invest billions in research and development so they can invent new stuff which creates new jobs. If you don’t like it then let me ask you — when was the last time you invented something or created a single job? This country was built by innovators and go-getters. Either quit your whining and build something or leave!
Duane

Nancy B.

When you or someone in your family has a medical problem, make sure you tell the physician not to use any of the GE diagnostic equipment on you either. I would hate to see your life saved by such an evil corporate entity as GE. Who do they think they are putting all their ingenuity and knowledge back into the life saving equipment which literally floods the halls of all medical facilities. It hopefully is a long term plot by GE to have the liberal democrats refuse treatment by them, and then die leaving only Republicans to vote, and thereby creating more profits.
Phillip

I would bet most of the idiots whining about the taxes that GE doesn’t pay are people standing in the walfare line waiting for that next handout. Get off of your butts and get a job so you can make some contributions to the tax fund.
That will never happen until we elect someone that isn’t afraid to reform the many walfare programs that our broke government offers.
John

to CPA: * applauds *

Damn you and your facts!!!! They just RUIN so many rants….

Soldier on!
Jonny Chepe

GE…you suck
wo wund

GE spent $40,000.000 in 2010 to lobby congress to get the tax laws in their favor. Imagine what would happen if they spent more.
UH34D

Any person who believes the US tax code is fair is living in a parallel universe.
jackj1378

Corporations do not actually pay taxes. They pass them on to consumers. The FairTax would end corporate taxation and relieve us of present unwieldy taxation. Everything we buy has an embedded tax of about 22%. The added federal sales tax would be 23%; wouldn’t it be nice to never deal with the IRS for only 1%? The cost of the cadres of accountants, tax attorneys, and other personnel required for tax calculations would be greatly reduced. What is wrong with the present system is that the elected representatives in Congress pick winners and losers through the monstrous tax code. Also, the IRS asks for billions in additional funds for added personnel to further their draconian methods for making all of us criminals. Our present system is unconstitutional. We need a peaceable revolution to put a stop to this nonsense before it is too late. Gutless Congress will do nothing until the revolution.
Pro

Nancy,

I’m responding to the following comment:
“GE: Don’t expect my family to buy ANYTHING made by GE!!!”

You show GE who’s boss. Just so you know, you and your family can no longer watch NBC, CNBC, MSNBC, History Channel, Bravo, USA Network, Lifetime, SyFy, The Weather Channel, A&E, or a slew of other television networks owned by GE.

Also, since you’re in the mood to boycott large corporations, you should throw Google and NewsCorp into the mix. By then, pretty much the only television you’ll be watching is CSPAN, and the only thing you’ll be able to do online is update your Facebook.

I’m not really a huge fan of Immelt or the U.S. tax code, but GE is doing nothing more than creating value for its owners by properly utilizing a tax code that was written by politicians that YOU elected.
Mickey

I too will no longer purchase anything made or fostered by GE!
MichaelB

If all the comments by the “corporations are evil and don’t pay their fair share” weren’t so pathetic and ill-informed, they’d be funny.

CPA and others nailed it on the head.

The ‘evil corporation’ meme is nothing more than another attempt to brainwash the voters who won’t or can’t do their own homework. It’s class warfare, plain and simple.

Much like Obama’s claim that the economy ‘was losing 700K jobs per month” when he was inaugurated. Pay no attention to the unemployment chart and the steady decline from Jan 2009, but we were losing 700K PER MONTH ohh yeah. It makes for a lovely sound byte.

Corporations have been chased off-shore by high taxes, prices of goods wildly inflated by union thugs and syndicates holding companies hostage, and the inflation endemic in the Left’s insistence on taking more and more from American workers.

I don’t blame corps for moving operations overseas. The costs forced on them by the left make them noncompetitive in the U.S. These nuts that insist on a greater share of corporate profits have always moaned and groaned about prices, yet quietly buy the foreign goods anyway. The auto industry is as far as you need to go for proof.

Lefties….STFU until you discover the truth. And then STFU

“Any government that robs Peter to pay Paul, can always depend on the support of Paul. And since there are a lot more Pauls out there than Peters, Obama figures class warfare is a good political strategy as he kicks off his re-election campaign.”
Kee Ng

Being an outsider who is not an american, I wonder what all the negative remarks will win for those who made them? I cannot really see the positive intentions in all the noise. Sounds like self-destruction to me. More constructive ideas would probably be better and channel them to the persons who can do something about them. Look in the mirror and ask yourself how you would do different? Which country would you rather live and work in, raise your family up? How can you make a large corporation like GE one you can be proud of and want to work for IN America?