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"All businesses tend to pass costs on to customers."
All business executives pocket savings from destroying jobs. They NEVER pass savings onto customers.
Business In The Beltway
Forbes: What The Top U.S. Companies Pay In Taxes
Christopher Helman, 04.01.10, 3:00 PM ET
HOUSTON -
As you work on your taxes this month, here's something to raise your hackles: Some of the world's biggest, most profitable corporations enjoy a far lower tax rate than you do--that is, if they pay taxes at all.
The most egregious example is General Electric. Last year the conglomerate generated $10.3 billion in pretax income, but ended up owing nothing to Uncle Sam. In fact, it recorded a tax benefit of $1.1 billion.
Avoiding taxes is nothing new for General Electric. In 2008 its effective tax rate was 5.3%; in 2007 it was 15%. The marginal U.S. corporate rate is 35%.
How did this happen? It's complicated. GE's tax return is the largest the IRS deals with each year--some 24,000 pages if printed out. Its annual report filed with the Securities and Exchange Commission weighs in at more than 700 pages.
Inside you'll find that GE in effect consists of two divisions: General Electric Capital and everything else. The everything else--maker of engines, power plants, TV shows and the like--would have paid a 22% tax rate if it was a standalone company.
It's GE Capital that keeps the overall tax bill so low. Over the last two years, GE Capital has displayed an uncanny ability to lose lots of money in the U.S. (posting a $6.5 billion loss in 2009), and make lots of money overseas (a $4.3 billion gain). Not only do the U.S. losses balance out the overseas gains, but GE can defer taxes on that overseas income indefinitely. The timing of big deductions for depreciation in GE Capital's equipment leasing business also provides a tax benefit, as will loan losses left over from the credit crunch.
But it's the tax benefit of overseas operations that is the biggest reason why multinationals end up with lower tax rates than the rest of us. It only makes sense that multinationals "put costs in high-tax countries and profits in low-tax countries," says Scott Hodge, president of the Tax Foundation. Those low-tax countries are almost anywhere but the U.S. "When you add in state taxes, the U.S. has the highest tax burden among industrialized countries," says Hodge. In contrast, China's rate is just 25%; Ireland's is 12.5%.
Corporations are getting smarter, not just about doing more business in low-tax countries, but in moving their more valuable assets there as well. That means setting up overseas subsidiaries, then transferring to them ownership of long-lived, often intangible but highly profitable assets, like patents and software.
As a result, figures tax economist Martin Sullivan, companies are keeping some $28 billion a year out of the clutches of the U.S. Treasury by engaging in so-called transfer pricing arrangements, where, say, Microsoft's overseas subsidiaries license software to its U.S. parent company in return for handsome royalties (that get taxed at those lower overseas rates).
"Corporations are paying lower amounts of their profits in taxes now than in the past," says Douglas Schackelford, who teaches tax law at the University of North Carolina at Chapel Hill. "Other countries have been lowering their rates, but not the U.S."
Mind you, not all global megacorps enjoy such low tax rates. Try to muster some pity for Big Oil. ExxonMobil paid more income taxes than any other U.S. company last year, some $15 billion, or 47% of pretax earnings. Exxon's peers Chevron and ConocoPhillips likewise paid out more than half their earnings in income taxes. The oil companies are oddities among the multinationals because many of the oil-rich countries where they do business levy even higher taxes than the U.S.
Exxon tries to limit the tax pain with the help of 20 wholly owned subsidiaries domiciled in the Bahamas, Bermuda and the Cayman Islands that (legally) shelter the cash flow from operations in the likes of Angola, Azerbaijan and Abu Dhabi. No wonder that of $15 billion in income taxes last year, Exxon paid none of it to Uncle Sam, and has tens of billions in earnings permanently reinvested overseas.
Likewise, GE has $84 billion in overseas income parked indefinitely outside the U.S.
Naturally the Obama administration wants to put an end to this. It has proposed doing away with tax deferrals on overseas income. If the plan passes, a U.S. company that pays a 25% tax on profits in China would have to pay an additional 10% income tax to Uncle Sam to bring it up to the 35% corporate rate. "Eliminating deferrals would put U.S. companies on an unlevel playing field," says the Tax Foundation's Hodge, "especially if competing with the likes of Germany, which only taxes companies on domestic operations."
Hewlett-Packard and others among the top 25 state in their annual reports that if Obama's tax measures pass it would mean a certain tax hike, probably amounting to billions of dollars.
Would no more tax holiday for GE really end up helping Mr. and Mrs. Taxpayer? Doubtful. "The average Joe should be in favor of lower corporate taxes," says Hodge, "because ultimately they are paying the corporate income tax. Either as workers, getting lower wages and fewer jobs, or as consumers, paying higher prices, or as retirees, getting lower dividends and earnings on their investments."
In the same vein, JPMorgan Chase Chief Executive Jamie Dimon has spoken out against an Obama proposal to levy a special tax on banks to recoup bailout costs. "Using tax policy to punish people is a bad idea," said Dimon. "All businesses tend to pass costs on to customers."
"All businesses tend to pass costs on to customers."
Exactly. If there's a supply-demand equilibrium, then raising prices would upset that and not maximize business."All businesses tend to pass costs on to customers."
rich people and corporations lobby for tax loopholes and then use them
Well, Obama may finally stand up to it if his proposal can survive.
not gonna red the article just gonna say "jack "
Can someone tell me why congress would write such tax laws that allows GE to get $1.09 billion from us tax payers?
Who are they friends with in congress to write such great deals in the tax laws? Must have been authorized by this new administration. For 2008, they paid $1.052 billion in taxes. $4.130 billion in 2007.
Could it be Congress' way of giving their banker friends money since Bank of America own 100,440,166 shares?
Last edited by Wild Cobra; 04-04-2010 at 01:47 PM.
You might want to read the article, WC.
Here is a great idea Barry. Lower the taxes on all brackets. That is of course if you do want companies to return back to america.
Then what?
LOL, you do realize that GE has been one of the largest corporate beneficiaries (and donors) of the Obama Administration, right?
You can bet any corporate tax proposals will put even more money into the pockets of those who own GE.
But tax breaks are good right?
Here's my question: Do board conservatives/Repub's think that we can lower the tax bracket enough to wipe out the advantage held by employing cheap, overseas labor?
Unless you're coupling a tax break with an elimination of the minimum wage, I don't see how the tax reduction will work. (And that would open up a whole new can of worms.)
If corps are persons who deduct operating expenses from taxable income, then why can't a real person deduct their operating expenses (gasoline, utilities, mortgage, rent) from their taxable income?
btw, the 25 top hedge fund managers in 2009 averaged EACH 3 $B in income, but were taxed at only 15% (capital gains), if they are stupid enough to pay even that much.
Their income is for management FEES of other people's capital, not for proceeds of investing their own capital.
A tax break mean for these big corps. They don't pay taxes no matter what the rate is anyways.
China's and other countries' currency manipulation plays a much larger role in overseas labor development than taxes, imho. Artificially keeping their currency devalued, thus making their labor and costs cheaper, is the major driver behind China's recent manufacturing upsurge.
They can if they are contractors or own their own businesses. It's the nature of the definition of "person" that matters. "person" is not equal to citizen.
And they biggest benefactor of all this "green energy"
This has shown that there is an incentive for corp. to move overseas to avoid paying more in taxes. By lowering the taxes, you aren't going to be leveling the cost field but atleast it will make the american work forces' strengths more appealing. If there was a flat tax for corp, every business would come to america. all the money they would save from accounting, lawyer fees and labor costs.
With our taxes right now, even cost differentiation companies are leaving.
How does changing tax rates affect labor costs and overhead again? Somehow I doubt it brings us in line with India and China.
Oh yes, I'd agree that plays a big part. But what about, let's say for example, phone support jobs being outsourced to India? If the economy in a foreign country is low enough to make it profitable for countries to employ work there, I don't see how lowered tax rates would convince them to keep their jobs in the US.
Correct. I doubt we could lower taxes enough to offset the type of advantage a suppressed economy offers.
Is there any proof that lowering said taxes will create as much profitability as outsourcing to another country, though?
That's the info I'd like to see, personally.
I'm sure lowering taxes would be a FACTOR in getting companies to employ people in the US; however, I doubt that would provide enough profit/incentive on its own.
Question to board libs:
If you own stocks in any of these companies as part of your 401k, don't you want these companies to maximize their profits?
Maximizing profits is not the droid you're looking for.
Sustainable profits are.
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