The author is a Reuters columnist. The opinions expressed
are his own.
By David Cay Johnston
Aug 23 Washington politicians say high
corporate tax rates are driving U.S. companies to invest
offshore where tax rates are lower. But that is not General
GE's disclosures show that over the last decade it paid
much lower tax rates in America than offshore, just the
opposite of the Washington political mantra. Even more
puzzling, the U.S. corporate giant chooses to take more of its
profits in other lands despite the higher tax rates there.
Given that GE (GE.N) has a roughly 1,000-person tax
department dedicated to paying as little as possible in taxes,
what the disclosures show is that something other than tax
policy is driving GE's business decisions.
The law gives companies a great deal of latitude in
deciding how to arrange where they report profits from
multinational transactions. GE won't elaborate on why it takes
so much of its profit in higher tax jurisdictions offshore.
GE finds tax haven in US: r.reuters.com/zyc43s
HIGHER RATES ABROAD
From 2001 through 2010, GE's total American corporate tax
burden averaged 9.4 percent of its profits in American
corporate income taxes compared to its 17.9 percent foreign tax
GE's accounting for taxes, both current and deferred, shows
that its American tax rate is just a bit more than half its
foreign rate and only about a quarter of the statutory 35
percent rate set by Congress.
Gary Sheffer, GE's top spokesman, insists that the average
9.4 percent rate over 10 years is misleading because GE
suffered big losses in its finance unit that lowered its 2010
"GE's tax rate was lower than normal in 2010," Sheffer
advised me, because "we lost billions of dollars in GE Capital,
our financial arm, during the global financial crisis. Our tax
rate will be higher in 2011 as GE Capital recovers."
But that anomalous year pales compared to the long-term
Break the first decade of this century in two and you can
see the trend clearly.
From 2001 through 2005, GE paid almost identical tax rates
on its profits, 19.3 percent in the U.S. and 19.7 percent
offshore. During those five years GE reported 56.1 percent of
its profits in the United States.
But for 2006 through 2010 a number of significant changes
show up in the fine print of GE's 10-K disclosures.
FALL OF 28.3 PCT
First, the share of profits taken in the U.S. fell by half
to 28.3 percent. On the surface that fits the Washington
political debate that high taxes are driving capital and
But during those same years GE's offshore tax burden was 28
percentage points higher than its American rate. GE reported
tax rates of 16.7 percent on offshore profits, compared to
minus 11.5 percent on U.S. profits.
During those five years GE reported $26.6 billion in U.S.
profits, but its accounting shows a negative $3 billion tax
expense. Offshore the company made $67.3 billion and its taxes
by the same measure came to $11.3 billion.
Of that $3 billion negative tax burden over five years, GE
relied heavily on business tax credits that Sheffer described
as "widely available" and included "the credit for
manufacturing energy-efficient appliances in the U.S., the
credit for research performed in the U.S., and the credit for
energy produced from renewable sources."
Those business credits, first disclosed in 2006, saved GE
almost $2.3 billion. Even without them GE would have reported a
tax burden for those five years of minus $794 million or minus
3 percent in the United States. Despite this, GE keeps taking
more of its profits offshore where it pays higher taxes,
suggesting tax rates are not as crucial an issue as U.S.
Here is another way to look at the disclosures: In 2001
GE's American tax rate was a third higher than its foreign
rate. Its American corporate income tax rate was 28.6 percent,
compared to 21.1 percent on foreign profits.
STUDY IN CONTRASTS
In every year since then, GE's domestic tax rate has been
much smaller than in 2001. It reported negative tax liabilities
in four of the next nine years.
Offshore, however, GE reported a positive tax rate every
year, always in double digits.
Significantly, in 2010 -- the year of Sheffer's focus in
response to my questions about the longer period -- GE's
offshore tax rate was 22.9 percent, a higher rate than in 2001
and the second highest rate since 2001.
During the past decade GE's state tax rate also slipped,
but not by much. The rate was 3.3 percent in the first half of
the decade, but just 2.7 percent in the second half.
Yet another way to look at taxes is the company's worldwide
accounting for taxes, which blends American, offshore and state
burdens. Back in 2001 it was 28.3 percent of global profits.
Every year since then it has been under 20 percent. The rate
was negative in 2009 and in single digits in 2008 and 2010,
thanks to negative tax rates in the United States for those
All these numbers show the same basic trend line -- despite
higher taxes offshore and much lower domestic taxes, GE keeps
taking more profits offshore. That cuts against the simplistic
theme of the growing bipartisan consensus in Washington that
corporate tax rates must come down.
These facts all raise the question of whether our elected
leaders in both parties will stop memorizing talking points and
get to studying data points so we get reality-based tax policy.
That means paying attention to nuance, including those business
tax credits GE relies on so heavily, as well as posted tax
Congress may be blind to such facts, though, because of the
money GE spends to influence Washington. Last year GE spent
$39.3 million lobbying Congress, roughly $73,000 for every
senator and representative. That's four times what it spent
back when its American tax rates, and its share of profits
taken in America, were both much higher.
(Editing by Howard Goller)