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The 57,000 Page Tax Return
- JfromSw 15y ago"Consider the resources that GE spends to lowers its tax bill... Indeed, a corporate tax system with a tax rate of zero could well be preferable as it would waste fewer resources and raise not much less revenue." Or you could just pay your taxes, GE
- namdnay 15y agoI got the same impression. And even on the government's side, surely the step this situation suggests is to close loopholes rather than lower taxes?
- delinka 15y agoI tire of this argument. They do. They pay taxes according to the laws of the land. Are they being fiscally responsible by paying less to the tax experts than they'd pay in taxes? I don't know, but I'd suspect either those experts will always continue to justify their existence (e.g. "Yes, Mr. CEO, we've saved you oodles of money") or corporate boards and executives just prefer not to think about taxes and accounting and such and just keep some accountants and lawyers around anyway.
- yummyfajitas 15y agoGE does pay their taxes. The issue is that they structure their business in a socially inefficient way in order to minimize their taxes. They do pay the taxes they owe. I'll speculate that what you may really oppose is structuring transactions in order to avoid taxes. But then again, you may not. Do you oppose employers providing health insurance, i.e. untaxed compensation? Do you oppose individuals buying a home when the mortgage interest tax deduction tips the scales in favor of home ownership? Or corporations switching to green energy sources when tax subsidies make it economical [1]? [1] Incidentally, this is one of the bigger tax breaks GE used.
- JfromSw 15y agoI'm sure they pay the taxes they owe and they do it within the legal framework they operate in, otherwise we would be reading a whole other article about corporate fraud. Instead the article is about a company that paid zero in taxes on their profit thanks to "extraordinary use of tax breaks and clever accounting". I'm not against any of the tax structures you mention, GE doesn't need the best tax experts in the world for those things. So even though I haven't read the 57,000 page tax return I am willing to guess that all of the tax breaks used where not of the same considerate nature as the ones you mention. It just seems like the primary motivation is to avoid paying taxes, not switching to green energy or even pay health insurance. The article even mentions "inefficient ways that GE structures its businesses just to avoid paying taxes", which, if true, is a major indicator. Of course I may be completely wrong, I don't know what the motivation is and why they seem to work so hard not to pay taxes on their profit.
- yummyfajitas 15y agoThe biggest tax break they got is a loss carryforward. This is a one time event due to losses incurred by GE Capital, and is almost certainly not something they did on purpose. http://www.investopedia.com/terms/l/losscarryforward.asp#axzz1edUBe5si http://www.investopedia.com/terms/l/losscarryforward.asp#axz... In contrast, GE's green energy and paying for employee health insurance are done directly to avoid paying taxes. GE's windmills are profitable primarily because of the tax benefits. And there is no business reason whatsoever why a company should pay for employee health insurance, or car insurance, or cable TV. Companies pay for health insurance because it reduces the tax bill, and they generally don't pay for car insurance (which doesn't reduce the tax bill).
- bobbles 15y agoI thought this whole story was debunked a while ago along the lines of GE bringing forward their losses from the previous tax year, which is why they paid no tax
- TheFuture 15y agoThat doesn't make for good class warfare rhetoric though. We're headed into an election year!
- jfruh 15y agoWhat would happen if corporate taxes were lowered to zero, but capital gains were taxed as ordinary income? Corporations are not people, etc., and maybe taxes should only be imposed when they actually enter a human being's possession.
- buro9 15y agoAnd in addition tax cash stock piles to help drive re-investment, research and growth. The combination says: You'll be taxed individually if you withdraw it, or taxed as a company if you horde it. Why not invest it instead? Which might lead to greater employment, or more innovation. * This whole post was a 2-second thought, I'm pretty sure it's flawed, but it amuses me.
- yock 15y agoWhat constitutes a "cash stockpile?" Does this disincentivise saving? Is it even legal to tax funds without a transaction?
- eli 15y agoWhy would it be any different from taxing property that you simply own? In fact, where I live, blighted, disused buildings are taxed at a punitive rate.
- TheFuture 15y agoThis idea that people/businesses "horde" cash is simply bizarre to me, yet I see it again and again in discussions about the economy. Unless it's stacks of paper underneath their mattress, it's in a bank, essentially an investment, and is able to be lent out as capital.
- Symmetry 15y agoActually, no. Back in 2008 when banks were failing but the economic numbers showing that we were in a depression hadn't come in yet the Fed was faced with a problem. They felt like they needed to pump money into failing banks, but they were worried that this might cause inflation. To allow them to inject lots of money into banks without it getting out into the rest of the economy they came up with something called the Interest on Reserves, that is the Fed would pay the banks not to lend the money out. It totally fulfilled its objective. Despite huge growth in the money supply America was soon actually experiencing deflation in 2009. Sweden, on the other hand, actually charged banks interest on the excess reserves they were holding - and their economy recovered very quickly...
- jasonkolb 15y agoThe only way to prevent this is to move to a sales tax model. Anything else can be gamed ad nauseum as GE & co have so helpfully proved. With today's tax system, the amount of taxes you pay are inversely proportional to the amount of complexity you're willing to deal with. And since corporations are legally people, you're barking up the wrong tree with conversations about not taxing businesses. Sales tax it, period. Cannot be circumvented.
- smokinn 15y agoSales tax only puts the burden disproportionally on the poor. If you're making millions of dollars a year you're probably only spending a small fraction of it and if there's only sales tax you pay tax on a percentage of what you spent. So let's say you made 30 million dollars and spent 8 and say the sales tax rate is 15%. In this case you paid 1.2MM in tax for a marginal tax rate of 4%. On the other hand if your income is 15k you're probably spending it all or very close. In which case your marginal tax rate is 15%. Not all that fair I'd say. Personally I like the progressive income tax method. I just think capital gains should be taxed as income rather than at a flat 13% and no special rules for corporations either. If they want to be people they can be taxed like people. If they want to be different then we can just get rid of corporate personhood. I doubt they'd like that much.
- protomyth 15y agoYou can actually fix a lot of the sales tax issues by excluding certain categories (e.g. unprepared food, clothing). I am more a flat rate tax person with a base exclusion per tax payer (i.e. your kid working a summer job files for themselves) and only one tax line (the government can divide it between SS, FICA, etc). As a curiosity, I was trying to figure out what would actually be revenue neutral. I think somewhere in $20K deducible then 17 - 20% flat rate after that. It is really not that easy to get all the information needed to play with various scenarios.
- tokenadult 15y agoYou can actually fix a lot of the sales tax issues by excluding certain categories (e.g. unprepared food, clothing). That's what my state historically has done. The last time I bought an expensive business suit, the purchase was free of sales tax, because a business suit is clothing. There is always pressure, however, to broaden the categories of goods and services that are subject to sales tax, especially when a government unit has a shortage of revenue relative to what it is expending to maintain government programs.
- rayiner 15y agoA lot of a tax return is just huge reams of supporting documentation (accountings of expenditures, etc). Also, keep in mind the scale of the endeavor. $150bn in revenus accounted for in 57,000 pages. I.e. 1 page of documentation for $2.63m in revenue. How much did it cost to generate and analyze? $10m? $50m? At $50m that's an overhead of 0.03%, for an inevitable part of running a modern society. Seems way less inefficient when you put it in context.
- tryitnow 15y agoThat's a very good point. Once again the "headline" about a "huge tax return" distracts information away from the real problem, which is that US nominal corporate rates are too high and the effective rates are too low. The real problem is not necessarily all the work that goes into filing the tax return, but rather the influence peddling that leads to policies that misallocate* scarce resources to politically favorable projects. *this is just my bias, but I am willing to bet it's the consensus among economists that firms allocate private resources more effectively than politicians when those politicians are largely influenced by the firms themselves.
- fleitz 15y agoThe capital allocation is smart for an individual company given the political environment, but the political environment is silly. The current system of politics and influence is likely a Nash equilibrium. In the current environment no one has anything to gain by unilaterally changing their strategy, and thus hiring lobbying firms is a good allocation of capital.
- brc 15y agoYes, but the point missing is that those 57,000 pages went into a tax return that produced no revenue for the government. That's good money spent by the company, but terrible for society as a whole. If you're going to make it so large companies pay no tax, just set them a 0% tax rate and turn the lawyers and accountants towards more productive uses.
- jellicle 15y agoThis blogger is, as usual, arguing that the corporate tax code is somehow too complex. Rather what is happening is that GE is intentionally gaming the system. Most of those 57,000 pages are self-inflicted. If GE refrained from tax-dodging activity and only undertook regular business activity, their tax return would be much, much thinner. http://money.cnn.com/2010/04/16/news/companies/ge_7000_tax_returns/ http://money.cnn.com/2010/04/16/news/companies/ge_7000_tax_r... A few lines of patching to the tax code to require that income earned in the U.S. be taxed in the U.S. would fix the majority of the problem. Literally a couple of sentences.
- Anderkent 15y agoOr, you know, make the tax code simpler so that there is less room to game the system?
- Vivtek 15y agoWith the result being that GE would have to pay billions in taxes and thus have less money to bribe Congressmen.
- three14 15y agoAlthough there are clear problems with the tax code, people forget that some of the complexity is there because that's what most people actually want. People want a tax deduction for charity. People want to tax corporate profits, not revenues - so you need to figure out how much is actually profit. Is R&D a real expense? Can we just sink all our profits into R&D and say we have no profits? But you can't just tax all R&D as if it was profit that the company is hiding or software companies would go out of business. What about when you have some complicated schedule of when a client pays you - do you record the revenue when you earn the money or when you get it? Many people want a tax deduction for a mortgage (whether or not this makes any sense). Like software, complexity gives room for hacks. You can't hack into a hammer, but you can hack into a computer. If you want a complex tax code, you don't simply declare "Simplify!" It's like "I'm going back to my typewriter to avoid viruses." There are more realistic ways to deal with the problem, and like computer security, it takes real time and effort.
- jonhendry 15y agoGiven the vast size and complexity of GE's business, I don't really think 57,000 pages is unreasonable. Who knows how many hundreds of sub-units they might have, foreign entities, etc. At $150 billion of revenue, that's $2,631,578.95 of revenue per page. Which is better than most tax filers have to deal with. Especially when, as a result, they save billions of dollars in tax payments.
- drstrangevibes 15y agopossibly one of the best hacks of 2011
- bfe 15y agoUltimately, economic growth comes from growth in productivity, i.e. making stuff people want. We seem to be riding an ever-increasing complexity of arbitrary systems, including tax laws, financial regulations, healthcare regulations, etc. that is drawing an ever greater share of the time and talents of the well-educated workforce into the world's largest game of Dungeons & Dragons against each other, and not making anything that anyone wants.
- saturdayplace 15y agoI've wondered a lot lately whether our bureaucracy might someday collapse under its own weight. Given the scale of many of our problems, and seeming incapacity of our bureaucracy to solve them, it seems like eventually people might come to the conclusion that the only solution is to throw out the bureaucracy and start over.
- nekojima 15y agoI'd hate to imagine the size of the bureaucracy required to manage THAT change, much less the mission creep, cascading timelines & massive cost over-runs. :-/
- skore 15y agoThat is true. However - instead of that, we basically have the exact same thing, just stretched out over a much longer period of time.
- zeteo 15y agoNo bureaucracy collapses under its own weight. What happens, when rules become too complex, is that they start being enforced arbitrarily, according to the discretion of the enforcers. The system still derives its legitimacy from the supposed impartiality of written rules, but in fact becomes an ad-hoc collection of petty fiefdoms in a loose hierarchy.
- jfoutz 15y ago
- jeffreymcmanus 15y agoWe need an alternative minimum tax for corporations. If this is OK for individuals it should be just fine for billion-dollar businesses.
- radog 15y agoThere is a corporate AMT.
- jeffreymcmanus 15y agoThen why didn't GE pay it? Somebody's got their definition of 'minimum' screwed up.
- mcantor 15y agoThis is one of the most sublimely hilarious and soul-crushing things I've read recently. It's like an Onion article.
- Cieplak 15y agoAnyone know where to find this 57,000 page PDF?
- Pythondj 15y agoIf you'd really like to dive deep into GE's filing try taking at look at it as a tagged XML file using XBRL at http://www.sec.gov/cgi-bin/viewer?action=view&cik=40554&accession_number=0000040554-11-000165 http://www.sec.gov/cgi-bin/viewer?action=view&cik=40554&... You can also download the data as an Excel Spreadsheet - they may obfuscate as much as they want - but if you start leveraging the XBRL tags - you can automate search for that incriminating needle in a haystack... This is what the SEC auditors are doing these days1
- dfc 15y agoYou realize that is a 10-Q and not a tax return? IRS and SEC are separate institutions. There is a big difference between the types of financial reporting for stocks versus federal income tax.
- dfc 15y agoWhat incriminating needle? Nobody has alleged any criminal conduct. Mr. Samuels is a smart man, that's not against the law.