Monday, March 24, 2014

The G.E. Loophole-- Bankrupting America To Make G.E. Executives Richer, Part II


Please go back one post and read Part I, where we began our look at the tax extenders (i.e., corporate loopholes) bill the Senate Finance Committee is getting ready to sneak through and present as a fait acompli, an incredible transpartisan exercise in Beltway corruption. The one sentence summary: corrupted senators from both parties are about to help General Electric continue to avoid paying taxes-- so that G.E. continues to help finance their own political careers-- by secreting away profits offshore to avoid paying federal taxes. The NY Times report in that post, by the way, won a Pulitzer Prize.

GE itself admits in its 2012 Annual Report (page 108) that this loophole is critical keeping the company’s taxes low. Because GE benefits so handsomely from what is technically known as the “Active Financing Exception,” it has been dubbed "the GE Loophole. "
Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases, as well as from net operating loss and tax credit carryforwards, and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered. Deferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years. We evaluate the recoverability of these future tax deductions and credits by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. To the extent we do not consider it more likely than not that a deferred tax asset will be recovered, a valuation allowance is established.

Our businesses are subject to regulation under a wide variety of U.S. federal, state and foreign tax laws, regulations and policies. Changes to these laws or regulations may affect our tax liability, return on investments and business operations. For example, GE’s effective tax rate is reduced because active business income earned and indefinitely reinvested outside the United States is taxed at less than the U.S. rate. A significant portion of this reduction depends upon a provision of U.S. tax law that defers the imposition of U.S. tax on certain active financial services income until that income is repatriated to the United States as a dividend. This provision is consistent with international tax norms and permits U.S. financial services companies to compete more effectively with foreign banks and other foreign financial institutions in global markets. This provision, which had expired at the end of 2011, was reinstated in January 2013 retroactively for two years through the end of 2013. The provision had been scheduled to expire and had been extended by Congress on six previous occa- sions, but there can be no assurance that it will continue to be extended. In the event the provision is not extended after 2013, the current U.S. tax imposed on active financial services income earned outside the United States would increase, making it more difficult for U.S. financial services companies to compete in global markets. If this provision is not extended, we expect our effective tax rate to increase significantly after 2014.
And there isn't a single member of the Senate, at leafs not so far and not publicly, who has been willing to stand up and put his-- or her-- foot down and say no to G.E. Congress has rubber-stamped similar bills in the past so there a good chance that Congress will pass the "tax extender" package with the GE Loophole intact if the public doesn’t make some noise about it, even though it will cost the taxpayers between $450 and $700 billion. Just the G.E. rip-off by itself will cost $62 billion. You'll recall, no doubt, that Republicans recently refused to pass an extension of unemployment insurance benefits unless they were "paid for," and they’ve been willing to shut down the government and default on the national debt because of their supposed concern about the deficit. Meanwhile, Mitch McConnell said in a recent televised press conference that there is no need to pay for the tax extender package, even if it does add billions to the deficit.

Although she isn't a member of the Senate Finance Committee, Maine Republican Susan Collins has been a happy recipient of thousands of dollars in legalistic bribes from G.E. and other companies that are "excused" from paying taxes with lucrative loopholes. Collins, who has already taken a sweet $5,000 PAC check from G.E. this year for her reelection campaign, never seems to have considered recusing herself from voting on any of the loophole bills she always supports. This cycle, Collins is being opposed by a serious-minded tax reformer, Shenna Bellows, who doesn't take money from corporate PACs. Saturday was Shenna's birthday. I reached her by phone and asked her if she had a comment on the loopholes Collins thinks G.E. should get. Word-for-word:
Taxes. No matter how you feel about them, we can all agree that the tax code isn’t fair. It’s especially appalling that the largest corporations in this country are receiving massive tax subsidies-- getting billions back from the American taxpayers because of our byzantine tax code and the power of special interest lobbying. Some of America’s largest corporations are paying nothing in taxes. Meanwhile, small businesses that fuel our local economies pay more than their fair share. In Maine, small businesses provide almost 60% of the jobs in our economy. They pay up to 35% in taxes. In contrast, corporations like General Electric, which refuses to disclose its actual tax liability, are paying as little as 7% and in some cases zero. Now, Republicans in Congress are proposing to renew the so-called “tax extenders” also known as tax loopholes to the nation’s largest corporations, many of whom are already avoiding paying their fair share.

Across Maine, people tell me they’re really struggling right now. They feel like Washington isn’t listening. They feel like most Washington politicians are out of touch with local problems. Here in Maine, it’s almost mud season. The roads are in terrible shape because of lack of investment in infrastructure. At our state’s second largest university, students are protesting budget cuts and faculty lay-offs. Rather than addressing these challenges by investing in our local communities, Congress is proposing a tax giveaway we can’t afford. It’s fiscally irresponsible to subsidize the wealthiest corporations in this country at a cost of billions of dollars a year. It’s time to close the loopholes. It’s time for change in Washington.
It's well past the time for sending Susan Collins a petition or a letter. Her entire career has been one of conveniently following the crowd and rubber-stamping unconscionable loopholes for G.E. and the other corporate behemoths that have poued hundreds of dollars into her comfy career. The DSCC isn't even challenging her reelection this cycle. Blue America is determined to help Shenna Bellows get her message out, a message about what she is offering Mainers and a message that shows the contrast between her own vision and Collins' lack of vision. If you'd like to help, you can do so here.

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