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On the topic of taxes paid by large US national corporations I


read an article by New York Times writer, David Kocieniewski titled
G.E.s Strategies Let It Avoid Taxes Altogether. In this piece he
proclaims that General Electric, a major US based Multinational
Corporation, paid no taxes in 2010. The article states, Its American
tax bill? None. In fact, G.E. claimed a tax benefit of $3.2 billion.

While some points outlined by the New York Times writer may be
falsely stated or not expanded upon, it is still worth while to consider
what GE actually did pay that year and touch upon the practices that
the corporation went through to achieve such a low effective tax rate.
According to the attached spreadsheet at the end of this paper,
the effective tax rate for the corporation has been declining for over a
decade now. The creator of this spreadsheet Ed Outslay, Professor as
Michigan State University, calculates the tax rates for the corporation
using different metrics as well as including and not including some
divisions of the corporation. In his findings the corporation had an
effective tax rate (ETR) in 2001 of 21.83% and then falling to a
whopping 7.4% in 2010.2 The corporation stated that its tax rate would
increase in 2011 due to a certain deal with Comcast. Last year, GE's
tax rate, for earnings-reporting purposes, was 7.4 percent. The
company says it will be higher this year, in part because of the $3
billion gain it recorded on the sale in January of a 51 percent stake in
1 Kocieniewski, David
2 Outslay, Edward

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its NBC-Universal media operation to Comcast.

But what does this

mean to the public eye and how did the corporation manage this low
tax rate, even though there was a percentage of their profit derived
from the US market?
The answer to those questions ultimately falls to the tax
department at GE. It has been reported that the tax team consists of
former Treasury officials as well as some from the IRS, including many
on the tax-writing committees in Congress. This could mean that GE
likely has access and influence on persons in Congress that make tax
policy. Furthermore, GEs CEO, Jeffery R. Immelt, was hand picked by
President Obama to be the liaison to the business community as well
as the chairman of the Presidents Council on Jobs and Competitiveness
(a council which discusses corporate taxes).

Through this influence in

Congress, and supported by experienced former officials, GE was able


to push changes in tax law in order to create more generous
depreciation schedules on jet engines.

However, depreciation is not

the hot topic when it comes to changed tax laws in favor of GE.
While the company started as an appliance maker to American
homes, it has now grown many other divisions. Today the consumer
appliance division only accounts for about 6% of revenue, while GE
capital provides about half of total revenue. GE is a large lender

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4 Kocieniewski, David
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overseas. The controversy arises because of the favorable tax
treatment that is given to the earned income from overseas lending.
Active Finance Exemption was all the talk when it came to tax
avoidances by GE. According to the Washington Post, Under the
provision, financial services firms and manufacturers can defer U.S.
taxes on overseas income from a type of financial transaction known
as active financing.

While on paper this exemption may be for

financial institutions, GE has been able to capitalize on this advantage


and run with it. Meaning that GE can receive income from overseas
lending activates and still remains untaxed on it. Moreover, according
to Pro Publica, As long as corporations tell their accountants they
intend to indefinitely invest those profits [or any overseas profits]
outside the U.S., they don't have to make a provision for federal and
state taxes on them. If the profits stay abroad, they remain untaxed.

The New York Times article blew this discuss out of the water when it
proclaimed that one of the largest US Multination Corporations had
paid no taxes in 2010 and even received a tax benefit from Uncle Sam.
Upon further investigation I was relieved to find out that not all of what
the Times was saying was true, however was disturbed as what else
came up. While it is every US Citizens right, as well as corporations
right, to lower taxes paid to the IRS through tax breaks and exemptions
enacted to stir up the economy, there is a limit to the use. GE pushed
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its way through to Congress and was able to achieve a tax bracket one
third of what firms with similar revenues pay. Were their tax practices
unethical though? Personal opinions aside, everything they did were
perfectly legal. The management of GE has a fiduciary duty to
maximize the profits of the corporation. Lowering its tax bill is one of
many ways it accomplishes this goal. In light of this fiduciary duty it
could be argued that management would be behaving unethically if it
didnt legally take steps to obtain the lowest possible tax liability. I
believe that if critics do not like the taxes that corporations legally pay
they should pressure the lawmakers in Congress to change the laws.
However when doing so they should consider the long-term effects on
the economy that could result if such policy has a negative effect on
growth and production.

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Bibliography

Eggen, Dan. "'Active Financing' Exemption for Some Businesses to Cost


Taxpayers $9 Billion." Washington Post. The Washington Post,
23 Dec. 2010. Web. 29 May 2015.
<http://www.washingtonpost.com/wpdyn/content/article/2010/12/22/AR2010122204963.html>.
Gerth, Jeff, and Allan Sloan. "5 Ways GE Plays the Tax Game." Top
Stories RSS. Pro Publica, 04 Apr. 2011. Web. 28 May 2015.
<http://www.propublica.org/article/5-ways-ge-plays-the-taxgame>.
Kocieniewski, David. "G.E.s Strategies Let It Avoid Taxes Altogether."
The New York Times. The New York Times, 24 Mar. 2011. Web.

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27 May 2015.
<http://www.nytimes.com/2011/03/25/business/economy/25tax
.html?_r=0>.
Outslay, Edward. "10 GE Tax Metrics." Fortune Magazine. N.p., n.d.
Web. 27 May 2015. <http://fortune.com/2011/04/04/the-truthabout-ges-tax-bill/>.
Sloan, Allan. "The Truth about GEs Tax bill." Fortune. Fortune, 04 Apr.
2011. Web. 28 May 2015. <http://fortune.com/2011/04/04/thetruth-about-ges-tax-bill/>.