We Need Tax Policy Based on Revenues, Not Rates
Recent news that General Electric's 2010 electronic tax filing would have been 57,000 pages long if printed should cause concern to individuals on both the right and the left of the political spectrum. It is hard to see how a flat corporate tax with no possible deductions is a bad idea given GE's tax performance.
Earlier this year, the New York Times, Forbes, CNN Money, and others reported that for tax year 2010, GE paid zero corporate tax on $5.1 billion in U.S. profits. Now, the sheer size of GE's tax filing, which has more than doubled since 2006, makes a flat corporate tax worth serious consideration.
Another factor to consider are profits held offshore to reduce tax burdens. GE's overall 2010 profits were $14 billion, with the bulk of the funds held in offshore bank accounts, which cannot be taxed. On the $5.1 billion held here in the U.S., GE used a combination of tax credits and benefits from a variety of federal programs to defray its tax liability. If taxed at the 35%, federal corporate income tax level for businesses with more than $335,000 income a year, GE's U.S. profits would yield $1.78 billion in tax revenue. CNN Money reported in April that the company had accrued $3.5 billion in "tax credits," which will be used to reduce future tax bills. Forbes has reported that to achieve these results, GE employs over 1,000 tax lawyers and several executives who are former IRS officials.
Federal tax receipts from corporations have plummeted over the past three years. Only 6.6% of the federal government's 2009 tax revenue was from corporate income tax, the lowest percentage in the OMB's historical charts, and in 2010, the 8.9% figure is also among one of the lowest percentages on record. In the specific case of GE, if the company had paid the tax it owed prior to 57,000 pages of deductions, the total federal corporate tax revenue would have been significantly higher.
Rather than a 35% tax rate including deductions and credits, a flat 25% tax rate on corporate income in 2009 would have produced $226 billion in income, not $138 billion. Current policies and regulations enable companies like GE to pay no tax and receive seemingly unlimited "credits" – a situation that should end, producing a rare point of agreement among conservatives and liberals alike.
Photo Credit: IRS EIN