GE paid an effective tax rate of 2.3 percent or less over the past ten years. What did the government do for GE while it was paying little – and often no – taxes? Let’s see:
The government let it off with just a slap on the wrist – more than once – after it repeatedly broke the law. The government bent the rules so that it could receive bank bailout money, although it wasn’t a bank, saving it from destruction and giving it billions in profits.
The government rescued it even though it had already blown a reported half-billion dollars on a shady mortgage firm that hired strippers and at least one ex-porn actress to sell its loans, shafting thousands of homeowners and leading many of them into foreclosure.
The government gave it favorable tax treatment for moving thousands of jobs offshore. And to top it all off, President Obama honored it (and undoubtedly helped its sales) by naming its CEO to be his “Jobs Czar.”
You’d think GE would be more than 2.3 percent grateful for all these favors. But apparently our tax code reads “To whom much is given, very little will be required.”
To be sure, GE has probably avoided paying its fair share of taxes in a “legal” way – if the word “legal” can be used to describe a system where corporations pay for the privilege of influencing politicians to bend the law in their favor.
As the Citizens for Tax Justice (CTJ) press release explains, the corporation paid 2.3 percent at most – and perhaps much less – over a ten-year period. It’s possible that GE paid no taxes at all. GE is one of this country’s many poster children for the unpleasant truth: Despite conservative yowling that the corporate tax rate is too high in this country, most of our biggest corporations use their lobbyists and tax lawyers to avoid paying their fair share.
That’s especially unjust when the country’s struggling through hard times and corporations aren’t. But it’s never more unjust than when the tax evader is a company like GE, which owes its government so much – for the juicy government contracts, for the slaps on the wrist (and no prosecutions) for repeated criminal fraud, and for bending the rules so that it could reap billions in giveaways from the same government it so gladly stiffs at tax time.
In fact, GE paid no taxes at all in 2010. Think about it: CEO Jeffrey Immelt and his senior executives mismanaged their company so badly that it would have crashed and burned without the estimated $85 billion in loans it received from the US government. Those loans reaped billions for GE – and cost the rest of us just as much – because they were issued at no-interest or low-interest rates.
And how much did they pay for being rescued?
That’s right. Immelt and his team trashed their own corporation. In a genuinely free market they would have been jobless by 2009. Instead, thanks to the goverment – you and me – GE made more than $4.7 billion in 2010 and paid nothing in income tax. In fact, it got tax credits of more than $3 billion, giving it an effective tax rate that year of -64 percent.
Let’s have a show of hands: How many readers had a tax rate of minus 64 percent last year?
I thought so. But then, how many readers committed serial fraud, got away with a slap on the wrist and no jail time each time, and were then named to a prestigious White House position?
That’s the GE story. As we explained a year ago, Federal investigators had concrete evidence that senior members of GE’s accounting division committed stock fraud. They misled investors by booking sales that hadn’t yet occurred, and by overstating the company’s 2002 revenues by more than half a billion dollars. As the SEC report noted:
“GE, acting primarily through senior corporate accountants, engaged in knowing or reckless fraudulent activities resulting in numerous materially false and misleading statements or omissions …The conduct of GE involved fraud, deceit, or deliberate or reckless disregard of regulatory requirements, and resulted in substantial loss, or significant risk of substantial loss, to other persons, within the meaning of Section 21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)(3)].”
The government knew that stock fraud had been committed. And as the report’s phrasing makes clear, they knew which individuals within GE had committed the fraudulent acts. Yet no criminal indictments were handed down. Instead the SEC concluded one of its notorious settlements with GE instead. In this case, it took $50 million to close the case.
As is usually the case with these settlements, GE was allowed to “neither admit nor deny wrongdoing.” Robert Khuzami, the official who has overseen so many of these egregious deals, said at the time that “GE bent the accounting rules beyond the breaking point.” Let’s parse that sentence: When something is “bent … beyond the breaking point,” it breaks. And if GE broke “the accounting rules,” then it broke the law.
Khuzami is one of the co-chairs of the mortgage fraud task force, sharing that responsibility with recently-appointed New York State Attorney General Eric Schneiderman.
2010 was also the year that GE paid $23.5 billion to settle bribery charges involving its kickbacks to Iraqi officials in the “oil for food” scandal. Once again its executives were allowed to walk away without prosecutions while shareholders picked up the tab for their deeds.
And for all of these gifts from the government – for being rescued and walking away with a slap on the wrist – GE paid no taxes at all in 2010. Zero. Zip. Nada. Bupkis.
Guilty Party Favors
Who is responsible when a corporation commits this kind of fraud? Accountants are both legally and professionally responsible for issuing accurate financial statements. A corporation’s CEO and CFO are required by law to sign a statement each year affirming that they’ve reviewed the company’s internal financial controls and put safeguards in place to prevent fraud and error. Any investigation would have to include a close look at the people who fill both those functions.
So who paid the $50 million for stock fraud? Was it the senior accountants who deceived investors? The executives who through negligence or criminality allowed the fraud to take place? Neither: It was paid by the same shareholders who were defrauded in the first place. Those stockholders didn’t bribe any Iraqi officials, either, but they paid the $23.5 billion settlement just the same.
But then, criminal indictments could have proven embarrassing all around, especially since GE Chief Executive Officer Jeffrey Immelt was named head of the President’s Economic Advisory Council, which was renamed the “Jobs Council.” That was ironic, given the tens of thousands of jobs GE has shipped overseas. The irony was compounded by the fact that Immelt replaced Paul Volcker, the highly respected economist whose recommendations for preventing additional bank catastrophes have been diluted and blocked by Immelt and his political allies.
GE isn’t just a corporate criminal. It’s a serial corporate criminal. In 2010 it settled thosr Iraqi bribery charges. In 2004 it settled with the SEC after misleading investors about the size and nature of ex-CEO Jack Welch’s retirement package.
Media watchdog FAIR compiled a list of GE’s pre-2000 criminal offenses, and it’s impressive: a $30 million fine after overcharging the Army for battlefield systems in 1990, a guilty plea on charges of fraud, money laundering and corrupt business practices while selling jet engines to Israel, and a 1994 report from the Project on Government Oversight which “found that GE had 16 instances of fraudulent activity against the government since 1990 –the most of any company listed.” (emphasis ours)
Who says crime doesn’t pay? After its criminal behavior in the nineties, GE won more lucrative Defense Department contracts and was given the government nod to become a dominant player in the media landscape. We all believe in rehabilitating the serial criminal, but that may have taken the idea a little too far.
Strippers and Pornstars
Immelt didn’t become more cost-conscious after the Welch incident. As we found out when Conversations” series, Immelt enthusiastically purchased a mortgage firm with a checkered record for fraudulent behavior, promoted its thirty year old leader, and then presided over the company as that firm promptly crashed and burned – taking billions of dollars and thousands of families’ futures.
Immelt paid a reported half-billion dollars of his shareholders’ money for this disaster-in-waiting. How classy was the operation that had him waxing enthusiastic at a national corporate meeting? In the words of journalist Hudson:
“What GE got in the bargain, former WMC employees say, was a place where erstwhile shoe salesmen, ex-strippers and even a former porn actress could sign on as sales reps and make big money pushing home loans.”
This is the CEO that President Obama appointed to head his “Jobs Council.”
Job (Killing) Czar
That’s not just a prestigious, high-visibility nod to Jeffrey Immelt. It’s also great for GE’s business. It tells all of GE’s potential business partners – here at home and, far more importantly, overseas – that the company’s wired at the highest levels. It also tells them that GE executives are even more untouchable than other Wall Street types.
That kind of protection can be seen as quite valuable in some circles.
Unsurprisingly, one of that Council’s few concrete “recommendations” has been to create more corporate tax breaks. But the best way that Jeffrey Immelt’s GE could create US jobs is by paying its taxes. If it had paid its taxes at a modest 29 percent rate, that would have raised an additional $21.7 billion in tax revenues.
At an average cost of $50,000 per employee for salary and benefits, the $21.7 billion in taxes that GE didn’t pay could have employed more than four hundred thousand people for a year to rebuild our bridges, roads, and schools. That would have stimulated growth and helped the economy get moving again.
How do you “cut” these corporate taxes? Just give them all our money?
If the President seemed dangerously out of touch or misguided in appointed Immelt to head his Jobs Council, the “corporate tax reform” plan he released last week only compounded that impression. It’s a vague proposal that only reinforces the absurd notion that US corporations are overtaxed. (If that were the case they wouldn’t be hoarding cash that amounts to somewhere between half a trillion and three trillion dollars, depending on whose estimate is used.)
As the CTJ noted, this “proposal” would not raise revenues. And as Robert Borosage noted, once the lobbyists and lawyers get through with it the proposal would no doubt lower these taxes even further.
Pay Now or Pay Later
To make matters worse, the President announced his corporate tax plan at Boeing – a corporation that has paid no taxes over the last ten years despite reaping $32 billions in profits – much of which was earned from government contracts. At a 29 percent corporate tax rate, that’s $9.2 billion in lost revenue which could have created 185,000 of those jobs rebuilding our schools, bridges, and highways.
When it comes to the quality of his potential opponents, the President has been blessed with good fortune. But all it takes to change that is one of many potential economic calamities waiting to happen this year. And even without a disaster, he’ll need to motivate his base and win swing voters. He’ll have to take more concrete action against corporate greed to convince the electorate he’s ready to take on the big corporations.
I mean seriously: 2.3 percent? Most of us call that a steal – most of us, that is, except Mitt Romney. He thinks of it as “a rough year.” But that needs to change too.
Richard (RJ) Eskow is a well-known blogger and writer, a former Wall Street executive, an experienced consultant, and a former musician. He has experience in health insurance and economics, occupational health, benefits, risk management, finance, and information technology.