The NYTimes reported earlier this year that through an extraordinary use of tax breaks and clever accounting:
[General Electric] reported worldwide profits of $14.2 billion, and said $5.1 billion of the total came from its operations in the United States. Its American tax bill? None. In fact, G.E. claimed a tax benefit of $3.2 billion.
The Times highlighted the skill of GE’s dream team:
G.E.’s giant tax department, led by a bow-tied former Treasury official named John Samuels, is often referred to as the world’s best tax law firm. Indeed, the company’s slogan “Imagination at Work” fits this department well. The team includes former officials not just from the Treasury, but also from the I.R.S. and virtually all the tax-writing committees in Congress.
More recently from The Weekly Standard we find what kind of effort it takes to pay no taxes on $14 billion in profits:
General Electric, one of the largest corporations in America, filed a whopping 57,000-page federal tax return earlier this year but didn’t pay taxes on $14 billion in profits. The return, which was filed electronically, would have been 19 feet high if printed out and stacked.
(FYI, the length of GE’s tax return has doubled since 2006 when it (first?) filed electronically at an equivalent of 24,000 pages.)
GE’s tax bill illustrates both why our corporate tax rate is too high and too low. The nominal rate is too high which encourages a real rate which is too low.
Consider the resources that GE spends to lowers its tax bill, not just the many millions spent on clever accounting and accountants and the many millions spent on lobbying but also the many inefficient ways that GE structures its businesses just to avoid paying taxes and the many millions it invests in socially wasteful projects just in order to produce privately valuable tax credits. Now add to that the allocational inefficiencies of taxing some firms at different rates than others and you have a corporate tax system which wastes a lot of resources and raises relatively little revenue. 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.
Hat tip: TaxProf blog.