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Corporations don’t have skin

Corporations Don’t Have Skin

by digby

This piece on GE in today’s NY Times captured perfectly one of the major imbalances in our system: corporate tax avoidance. Now there are those who think they shouldn’t pay taxes at all — that they are “job creators” and therefore can’t be expected to contribute even more. (This argument applies to wealthy individuals as well — they must be “free” to “be who they are” so that we might all benefit.)

The article outlines the scam for what it really is: a wealth protection racket for rich investorsl:

While G.E.’s declining tax rates have bolstered profits and helped the company continue paying dividends to shareholders during the economic downturn, some tax experts question what taxpayers are getting in return. Since 2002, the company has eliminated a fifth of its work force in the United States while increasing overseas employment. In that time, G.E.’s accumulated offshore profits have risen to $92 billion from $15 billion.

“That G.E. can almost set its own tax rate shows how very much we need reform,” said Representative Lloyd Doggett, Democrat of Texas, who has proposed closing many corporate tax shelters. “Our tax system should encourage job creation and investment in America and end these tax incentives for exporting jobs and dodging responsibility for the cost of securing our country.”

As the Obama administration and leaders in Congress consider proposals to revamp the corporate tax code, G.E. is well prepared to defend its interests. The company spent $4.1 million on outside lobbyists last year, including four boutique firms that specialize in tax policy.

How much do you think was spent lobbying for average Americans? If their economic performance is a guide, not much.

I urge you to read the whole thing. It’s an amazing piece, particularly in light of the ongoing sturm und drang over the deficit. It would be hard to find a better example of what might be done to reduce it or how difficult that will be. The Chairman of GE, after all, has just been called upon by the president to chair his Council on Jobs and Competitiveness. You almost have to laugh.

But I am more concerned about something else (and perhaps I’m just being paranoid.) As we know, the contours of a Grand Bargain can be found in the Deficit Commission Chairmen’s “report” in which they set forth a few tax increases and “tax reform” against substantial cuts to Social security that will fundamentally alter the program. (They also recommended lowering the corporate tax rate.) And I will be shocked beyond words if the Republicans ever agree to any straightforward tax increases. The best you can hope for on that front will be restoration of the payroll tax. In fact, I imagine that’s only going to be done in exchange for further — maybe permanent —extension of the Bush tax cuts.

So, what’s left to “bargain” with? I’m guessing that what the GOP may offer up in return for a substantial degradation of the Social Security system is “tax reform” throwing out some arcane formulations over corporate tax “reform” that, if fully implemented, would bring in substantial revenue. Huzzah. But here’s the problem: the people who will be affected by the Social Security dismantling will not feel the effects for some years and even if they did would not have the resources to do anything about it.

The same cannot be said for GE:

The company 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.

That may be hard to fathom for the millions of American business owners and households now preparing their own returns, but low taxes are nothing new for G.E. The company has been cutting the percentage of its American profits paid to the Internal Revenue Service for years, resulting in a far lower rate than at most multinational companies.

Its extraordinary success is based on an aggressive strategy that mixes fierce lobbying for tax breaks and innovative accounting that enables it to concentrate its profits offshore. 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.

I am not saying that trying to change this isn’t worth doing. I am saying it is a very bad deal for the people if they are asked to kick in their social safety net in exchange for something that is highly likely to take many years to wring out of the system, if it can be done at all. Professional tax avoiders tend to be able to find every possible loophole and have the money to create new ones:

Minimizing taxes is so important at G.E. that Mr. Samuels has placed tax strategists in decision-making positions in many major manufacturing facilities and businesses around the globe. Mr. Samuels, a graduate of Vanderbilt University and the University of Chicago Law School, declined to be interviewed for this article. Company officials acknowledged that the tax department had expanded since he joined the company in 1988, and said it now had 975 employees.

At a tax symposium in 2007, a G.E. tax official said the department’s “mission statement” consisted of 19 rules and urged employees to divide their time evenly between ensuring compliance with the law and “looking to exploit opportunities to reduce tax.”

Transforming the most creative strategies of the tax team into law is another extensive operation. G.E. spends heavily on lobbying: more than $200 million over the last decade, according to the Center for Responsive Politics. Records filed with election officials show a significant portion of that money was devoted to tax legislation. G.E. has even turned setbacks into successes with Congressional help. After the World Trade Organization forced the United States to halt $5 billion a year in export subsidies to G.E. and other manufacturers, the company’s lawyers and lobbyists became deeply involved in rewriting a portion of the corporate tax code, according to news reports after the 2002 decision and a Congressional staff member.

By the time the measure — the American Jobs Creation Act — was signed into law by President George W. Bush in 2004, it contained more than $13 billion a year in tax breaks for corporations, many very beneficial to G.E. One provision allowed companies to defer taxes on overseas profits from leasing planes to airlines. It was so generous — and so tailored to G.E. and a handful of other companies — that staff members on the House Ways and Means Committee publicly complained that G.E. would reap “an overwhelming percentage” of the estimated $100 million in annual tax savings.

The problem here is that even the most liberal of the influential Very Serious People have decided that we simply must cut future “entitlements” in order that the market Gods take us seriously. Ex-Obama official Christie Romer proved that most perfectly yesterday with her scathing indictment of the deficit hawks and discretionary budget slashers only to end up with this gobbledygook:

You care about the deficit because it allows you to do things you need to do to help people who are suffering.That’s the whole reason why I wish everybody would embrace the fiscal commission. If people do think we’re out of control of our budget, that surely can’t be good for investment. But how do we show we’re in control? House Republicans say it’s by cutting $61 billion out of this year’s budget. A more sensible view is that $61 billion won’t do anything, so why would anyone be reassured by that? The more sensible thing is we should have a package for short-term stimulus that also includes concrete policies that deal with the deficit, which means entitlements and taxes and defense spending and everything else.

How do we show we’re in control?”Basically, she’s saying that we need to make serious investments at the same time that we are “proving” that we aren’t spendthrifts. (Who we are proving this to is unspecified, but since she mentions “investment” I think we get the gist.) In other words, we are going to slash spending for people who won’t have to deal with the consequences until we are all dead in order to prove how tough we are to the markets today. And just to show that we are completely irrational, we are going to demand cuts in a program that isn’t contributing to the current problem and for which the potential shortfall 30 years hence can easily be fixed with a very simple increase in the payroll tax. (I’m actually beginning to think that cutting a program that doesn’t contribute to the deficit may be a feature not a bug — the more irrational the sacrifice to the Gods, the greater the tribute?)

I have a much better idea. Since the real long term deficit problem is in the health care system what we should do is set this up as a fight between the industry players. Simply say that whatever tax revenue is gleaned from behemoths like GE will go to pay for Medicare. Sadly, I think the Medical Industrial Complex has a much better chance of ensuring that money actually materializes than the people do.

In any event, I would be very careful about making any “bargains” on this basis or saying that it’s fair somehow because both the corporations and old people have “skin in the game.” Remember what we are talking about here — a corporation is a legal, paper entity formed for the purpose of organizing certain activity. No matter how many times the Supreme Court says that they are legally “persons” they aren’t literally human. Real persons have real skin, corporations don’t. Moreover, the corporations can easily afford to pay more — they are making profits hand over fist and paying dividends to their wealthy investors. Even if they had skin, this would be like exfoliation — it wouldn’t hurt a bit and in the long run it would make them look a whole lot better.

I’m happy to see some attention paid to this issue and hopefully Americans will wake up and realize they’ve been played for suckers before it comes to pass. But this is a complicated process with a lot of moving parts in the middle of several world wide crises. It’s the perfect opportunity to pass something like this without the people knowing what happened.

At a time like this there’s only one thing to say:

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