The spotlight is on GE, a multibillion dollar conglomerate which markets everything from toasters to jet engines to television shows. Last year, in 2010, GE posted a gross profit of about $75 Billion and earnings (EBITDA) of approximately $27 Billion. Net income applicable to common shareholders was listed at $12 Billion, and according to many sources, paid nothing in US Federal taxes. This no way infers they did anything illegal. They did, however, take advantage of the highly complex US corporate tax code (including a myriad of loopholes), allowing a company which earns so much, to pay so little. So the question is, as a shareholder, should I be happy or sad, pro business or pro regulation? The questions are black and white, whereas the answers are often in a gray area. Yahoo Finance lists the following notables for GE’s key statistics.
GE Profits & Taxes
GE 2010 Income Statement
Revenue $150.21 Billion
Gross Profit: 75.49 Billion
EBITDA: 27.44 Billion
Net Income: $12.32 Billion
It would seem reasonable to expect all profitable corporations to be their fair share of federal taxes, my company paid a fair sum of taxes for the year ending 2010 (and just to be clear, we didn’t net $12 Billion in profits). Of course fair is arguably an ambiguous term, some might think GE and other US corporations should be allowed to play the tax game, the ante paid dictated by the rules of the game. After all, they are merely playing the cards dealt by Congress, and are doing so legally. GE does have an obligation to shareholders to optimize profits, and it is something shareholders have a right to expect. That said, it is concerning to see a profitable mega corporation like GE engaging in extensive offshore outsourcing while simultaneously reaping federal tax breaks.
How can this convoluted situation happen? Under the tenet that everyone should pay their fair share, it would seem the culprit is the code. If the tax laws allow a company like GE to legally circumvent their ethical tax obligation, the laws must be changed, that responsibility ultimately residing with Congress. And herein resides the problem. Congress is influenced, by the influential. And mega corporations with their army of lobbyists and lawyers, and highly paid Fortune 500 executives are very influential. Can Congress find a fair balance? Can our President help execute a plan to simplify the tax code and share the tax burden? If incentives are to be created, cannot they be created to reward companies for domestic job creation and reduced offshore outsourcing (at least until such time as the US sees improved employment)?
In a recent article entitled How You Can Pull a GE on Taxes by Brett Arends of the Wall Street Journal, (http://custom.yahoo.com/taxes/article-112468-a664918f-23b7-33c4-a769-e3191efe8f39-ge-pay-no-taxes-wsj), Arends postulates how a small corporation can emulate GE and legally pay no taxes by utilizing the same techniques that giant corporations use. It was written on April 1st, but it didn’t seem like a joke to me, as many of the tax incentives mentioned are utilized by both small corporations and giant corporations across the US. Many would argue that corporations, just like hard working people, should pay their fair share. And if GE and other giant corporations can pay little if any taxes, that’s just not happening. That’s a call to action if I ever heard one. In this writer’s humble opinion, Congress (that’s both Republicans and Democrats) needs to cut out these tax loopholes ensuring any incentives have a clear and simple correlation back to job growth. We can’t blame GE for playing the game, but we can and should change the rules of the game.
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