What The Top U.S. Companies Pay In Taxes How can it be that you pay more to the IRS than General Electric?
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 ( GE – news – people ). 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 ( MSFT – news – people ) 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 Shackelford, 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 ( XOM – news – people ) in its 2009 annual report to the SEC, recorded a larger income tax expense than any other U.S. company last year, some $17.6 billion, or 47% of pretax earnings. Exxon’s peers Chevron ( CVX – news – people ) and ConocoPhillips ( COP – news – people ) likewise recorded similarly high effective tax rates. 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. Exxon has tens of billions in earnings permanently reinvested overseas. Likewise, GE has $84 billion in overseas income parked indefinitely outside the U.S.
Though Exxon’s financial statement’s don’t show any net income tax liability owed to Uncle Sam, a company spokesman insists that once its final tax bill is figured, Exxon will owe a “substantial 2009 tax liability.” How substantial? “That’s not something we’re required to disclose, nor do we.”
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 ( HPQ – news – people ) 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 ( JPM – news – people ) 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.”
There, now doesn’t that make you feel a lot better…
The State of California is planning “Reagan Day”. If I understand correctly, this is a holiday where we all max out our credit cards, give guns to the local mosque, have sex with a person we call “Mommy”, and then fall asleep and forget all about it the next day. Here’s the full story:
California is one step closer to establishing an annual day honoring Ronald Reagan, the former president, governor and actor.
The state Senate on Thursday unanimously passed a bill designating Feb. 6 as Ronald Reagan Day. It encourages schools to spend the day commemorating Reagan’s life and accomplishments.
The legislation, which heads to the Assembly, is one of three Reagan-themed bills Republican lawmakers hope to pass before Feb. 6, 2011. That would have been the 100th birthday of the conservative icon, who died in 2004.
Ronald Reagan Day would be the third special day of recognition in California dedicated to an individual.
The first honors conservationist John Muir. Last year, lawmakers honored Harvey Milk, a gay activist and former San Francisco supervisor who was gunned down at city hall in 1978.
Ya’ know, I think this may be pretty accurate for most guys who’ve been married as long as I have, but I think I’d personally enjoy a “Clinton Day”. If you know what I mean…
The iPad went on sale yesterday, and all the brainwashed fanboys could not get in line fast enough. Cory Doctorow over at Boing-Boing has written a fantastic little article on why the new Apple iPad is something I have no interest in ever purchasing, and am sickened that anyone would. I couldn’t agree with him more that Apple has become a total whore (OK, my word, not his) in that they have entirely turned their backs on everything that once made them cool / special and have completely sold out to the point where I swear they actually enjoy taking it DP style from both the RIAA and the MPAA and may have become just as greedy. Good luck with that anal fissure Mr. Jobs. I hear it’s rather painful in the end…
Here’s the 100-word version of Cory Doctorow’s article, but you really should read the entire article
I was a comic-book kid, and I’m a comic-book grownup, and the thing that made comics for me was sharing them. So what does Marvel do to “enhance” its comics [on the iPad] ? They take away the right to give, sell or loan your comics.
The device itself: clearly there’s a lot of thoughtfulness and smarts that went into the design. But there’s also a palpable contempt for the owner. I believe — really believe — in the stirring words of the Maker Manifesto: if you can’t open it, you don’t own it. Screws not glue. The original Apple ][+ came with schematics for the circuit boards, and birthed a generation of hardware and software hackers who upended the world for the better.
The way you improve your iPad isn’t to figure out how it works and making it better. The way you improve the iPad is to buy iApps. Buying an iPad for your kids isn’t a means of jump-starting the realization that the world is yours to take apart and reassemble; it’s a way of telling your offspring that even changing the batteries is something you have to leave to the professionals.
Today is Easter, the holiest day of the year for Christians. Today we celebrate the resurrection of Jesus Christ, the Son of God. So of course the first thought on my mind when I woke this morning was “how about a new list”.
I started to make a list of the 10 most popular Lent misconceptions. I know, boring… So then I thought I’d try to get to the true meaning of Easter with my list. On the first Easter Mary Magdalene witnessed the miracle of Christ’s return after crucifixion. Today, many confused and misinformed Christians of, let’s say, decreased mental capacity, often see Jesus’ return sometimes daily. So how about…
A List of the top places Jesus apparently likes to make an appearance:
And the Number 1 Jesus sighting on our 2010 Easter List:
1.) Jesus in Your Dog’s Butt. Seriously, he’s everywhere.
Well there you have it. Maybe next time I’ll try a list of places Mary likes to make appearances, like in the hair I found stuck to my shower drain. Just take a look for yourself:
By the way, is it just me or does it seem like a disproportionate number of these sightings happen here in Texas? I think that must be what they mean when they say “God Bless Texas”.
Today I’m starting a new category called “WTF”. Whenever I see something that makes me say WTF, I’ll post it here so I can ask myself “WTF?” whenerver I’m in a WTF kinda’ mood.
By the way, in case you were wondering, WTF stands for “What The Fudge”. At least for today.
“How the fudge you gonna get a scar like this eating pineapple, man?” Enjoy:
Adorable. I bet the chainsaw scene was absolutely precious. LINK
This public school answering machine made me laugh:
Why Do We Homeschool?
Deciding to become a homeschool family is perhaps the biggest, life altering event that has happened since I stopped blogging in 05′. Only a few people have ever said anything negative to me about the decision to homeschool, but I have received my fair share of weird or shocked looks after mentioning it. The most common thing people say to me is “what made you decide to homeschool”? So let me try to answer that, as I think it will be beneficial for me to put some thought into the answer.
We had never planned to homeschool, it just kinda’ happened. The school district we lived in built a few new schools one year, and then announced that they had rearranged the school boundaries so now my daughter, Tori, would have to change schools for the upcoming school year. We had looked forward to her attending our local middle school, since it was recognized as a fine school with a excellent reputation, but now we would have to drive past our local school each day to get to our newly assigned school.
This new school did not have a good reputation. Noted for very poor test scores that were declining by the year, with a well publicized history of violence and drug possession among students, I simply could not bring myself to send my daughter to this school.
For months we explored options and struggled with deciding what to do. Having ruled out transfer requests and private school, we realized that my working such unusual hours could prove beneficial in this situation.
To say that I was a bit intimidated by the prospect of homeschooling would be a huge understatement. I spent the Summer feverishly researching curriculum, becoming more and more nervous each day at the realization that I would now be my daughters full-time school teacher. I hated school when I was a kid, for the most part, but Tori had always loved school and was a great student, making only one “B” that I could remember, (even being awarded runner-up for Student of the Year once). The thought that she could fall behind if I failed at the job was horrifying to me.
Surprisingly, the adjustment to homeschooling went pretty well, perhaps in part by knowing that we already had a few homeschooled kids in our family – my brother-in-law and his wife homeschool their children. Their oldest son appeared to be a very intelligent kid, so we were exposed to what seemed like a successful homeschooling family (I would discover a couple years later that they had tried enrolling their two elementary school aged kids in public school, but were told that they’d each have to repeat a grade since they were behind grade level in their reading ability. They opted to continue homschooling rather than have their kids endure failing a grade. THANK GOD I didn’t know about this before we began homeschooling or I may have been too scared to follow thru).
OK, so that’s how we got here, but I still have not really addressed the reasons “Why” we decided to homeschool. I’ll get to that another time, but needless to say, I feel the public school system, for the most part, has become something of a joke.
I’ve been a fan of Leo Laporte for years, actually for over a decade now. From the old Screen Savers and Call for Help shows back in the nineties to the Tech TV days, the This Week in Tech podcast and Tech Guy Labs – Leo Laporte is the man when it comes to technology news and info. Sadly, he’s not on TV in the US anymore (at least not at the moment) but you can still find him on Twitter, The Lab with Leo, on syndicated radio doing the Tech Guy Labs show, and of course at TWiT.
This past weekend Leo got an interesting phone call from a women who has been stealing Wi-Fi for over a year and a half. She was actually dim enough to call up and complain that her “Linksys” had disappeared.
Wow! What an incredible game that was. I literally gave USA no chance of winning this thing. After Canada messed around and needed overtime to dispose of the Swiss 2 days earlier, I thought they’d come out like rabid dogs against the Americans last night. And why not, I mean Team Canada is basically a NHL All-Star team. The 4th line guys on this team are captains on their respective NHL teams. The talent level on this team is ridiculous, but when Rafalski put the US on the board at 41 seconds I thought, “oh boy, we may have a game here“.
What an understatement, this was a terrific game from start to finish. The entire schedule of games were amazing on Sunday with each hockey super power playing their rival. Russia VS Czech Republic, Sweden VS Finland, and of course USA, Canada. I absolutely love hockey, but especially Olympic hockey. As much as I enjoy the NHL, it simply cannot compare to Olympic hockey since the rules were changed to allow NHL players to participate. No team can ever duplicate The Miracle on Ice of 1980, even if we still sent college kids to the Olympics, due to the political and economical climate in America at the time. I say we continue to send professional players to the Olympics, so we don’t have to watch the Euro-pros gloat when they manage to win a game against our college boys.
Not only did Brian Rafalski have a great game, but Ryan Miller absolutely stood on his head and showed why he’ll get a few Vezina votes this Spring, plus Ryan Kesler scored what has to be the prettiest empty net goal ever. Also, it did my heart good to see Marty Brodeur look pedestrian. My guess is we may see Luongo in net for Canada after that display by Brodeur.
The only downside of the game for the Americans is that it happened while still in the preliminary round. No matter how great this game was, they don’t give out medals for winning the preliminary round. USA wins Group A, which earns them an extra day of rest and they get to play either Switzerland or Belarus as their reward, but they’ve done nothing to earn a medal yet.
Who knows, these two teams could see each other again for the gold medal next Sunday. Next up, we get to see if the Americans can keep it going, in the medal round, when it counts.
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