How to explain to friends the current economic situation

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Poet's picture
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Love It!

I love it! Makes total sense when broken down like that.

May I borrow and use for my friends?

My contribution might be, that I'd mention to people about a friend of mine whom I'll call "Sam". And I'll present his predicament and ask for advice...

Poet

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Absolutely

Poet wrote:

May I borrow and use for my friends?

Yes, please, exactly why I posted it.  I actually sent it off as a letter to the editor as well.

Poet wrote:

My contribution might be, that I'd mention to people about a friend of mine whom I'll call "Sam". And I'll present his predicament and ask for advice...

I like the approach. Smile

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Let's get started

As further guidance to the explanation of our current situation may I add the following comments:

Leaving aside the highly controversial subject of unfunded liabilities for just a moment, I have a few more numbers to add to the mix. Previous commentary has attempted to show that taxation of wealthy individuals and high income parties is insufficient to make any meaningful contribution to the Federal deficit and the 14T debt burden. Here are some figures to challenge and correct this assumption.

Consider that when we examine the far more meaningful income and taxation values for US based corporations, we can see a very different picture:

The most recent values I can get for corporate statistics are for FY 2007-2008.

Source.

1.)    Total assets of US corporations $81.5 Trillion

2.)    Gross (receipts) revenue: $28.8 Trillion

3.)    Income Subject to tax: $1.248 Trillion

4.)    Total tax paid after credits: $343 Billion

5.)   Total deductions allowed : $27 Trillion

Now, let’s unpack these numbers for a closer look. At first blush, the total tax rate appear to be a rather sensible 27.5% (Item 4 divided by Item 3). But what draws my attention is the total deductions allowed, which I break out as item 5, which is $27 Trillion in deductions allowing the corporations to draw down the gross revenues resulting in the taxable income figure of $1.248T. Pretty neat trick. Now to be fair, the IRS gives us a break out for Cost of Goods Sold, which decrements out of the total deductions, and to a large degree, I would be amenable to accept these values, (although there is game playing here as well) so let’s accept these at face value as legitimate deductions, to the IRS reported value of $15.5 T. So this leaves $11.5 Trillion in annual itemized deductions that US corporations are using to reduce their total tax liability.

I would say that this is a very significant sum of money that would have a profound and meaningful effect on the total Federal deficit, and the federal debt.

Some other numbers to throw in the pot:

a.)    Total number of corporate tax returns for the noted period was 5.9 million (active corporations).

b.)    Of these 5.9 million, 4.0 million were pass through entities, e.g. sub chapter “S” or REIT that pay no corporate  tax at all, rather, they pass through profits to individual shareholders.

c.)    Many corporations that have significant sales in the US pay no tax at all, for example, Exxon Mobil got a tax refund for the noted period, so did Bank of America, despite enormous profits.

d.)    Many other corporations deferred huge sums of income, using the so-called “double Irish” shell game strategy to move income producing assets to countries with low or no tax (such as Ireland) while placing operations entities that shed off only expenses in US jurisdiction. An example might be Goggle, with an effective tax rate of 2.4%.

e.)    I took the time to sum the total taxable income of the top 25 corporations and their taxation for the most recent tax year, with results as follows;

a.      Total taxable income: $243 Billion, total tax paid $46.4 Billion, average effective tax rate 19.1 %.

Source.

I’d sure like to have an effective tax rate of 19% in my business wouldn’t you?

So I’m quite sure all of this will get the usual name calling (Marxist, Statist, blah, blah, blah) but to pre-emptively clear the air, let me state what the point is here. It is not to transfer the costs of inefficient government to corporations, but on the other hand, it is most certainly not acceptable to conclude that all is lost and the government must be shut down. To realize this, reasonable and rational people would take a measured and sequential approach to this problem:

1.     Step 1. As a citizen and a (fully invested) shareholder of the assets of the United States of America, I am not receiving fair compensation for the resources of my country when they are being used by multi-national corporations for the express purposes of creating profits. I demand a fair and equitable return on my investment, and the current government is not providing adequate stewardship or advocacy to guarantee an acceptable return. As in any corporation with shareholders, changes must be made, and these changes are movements of replacement, with more efficient and directed management the objective, not dismantling. In addition, I demand a reconcilliation with an eye to resource sustainability, and these limits be factored into coporate growth strategies. No longer will we accept growth as driven by so-called free market limitless constructs.

2.     The first basis of any “turn around” in a troubled business is to insure that invoices are being sent out, and that the customers are being fairly charged. In our case, they are not. The invoices are not being sent out, the customer has paid off the accountant to ignore, waive or otherwise mark down the invoice values. No other action may initiate until this has been corrected as a first order of process.

3.     Once fair and complete recompense has been re-established, the eye turns to the Proft and Loss statements, and a re-assessment of the expense side of the ledger can begin in earnest. Unnecessary costs must be contained or eliminated, and redundancy removed. No cuts are allowed that will damage the profitability or core values of the entity.

So when did you want to start?

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re: darbikrash

Thank You.

Now spam congress with it. They seem to forget that revenue is part of the equation.

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Rhare This is a simply

Rhare

This is a simply brilliant way to illustrate our problem.  I have one suggestion to add to Poet’s.  I believe you calculated one ratio to apply to all the numbers to bring them down to a comprehensible scale.   To end the story of Sam dramatically we can say, “Now multiply these numbers by X, and this accurately describes the financial situation of the United States Government.”  So what number is X?

Very nice work Rhare.

Travlin 

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Revenue Matters, But Less Than Lobbyists and Politicians

I always tell people that we shouldn't measure our debt in terms of GDP, but rather, in terms of Federal revenues.

Unfortunately, I don't think we will see taxes rising on corporations. You'll likely see it rising on people - if not with income taxes, then sales tax and "fees". But most likely of all is printing money, which is what is happening right now, because raising taxes and fees is just spitting into a bucket with a big hole in the bottom.

That said, Darbikrash, one BIG question I have for you is if you know know if (and if included, how much of) of that $27 trillion in business deductions includes depreciation deductions spread across multiple tax years for the expense of purchasing depleting assets (like a rock quarry), buildings (office building), and equipment (computers, machinery, cars, trucks). Do you think that depreciation deductions are unnecessary?

Poet

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Now featured as a WSID post

Given its spot-on usefulness, this post has been promoted to the What Should I Do? featured module on the CM.com home page. Feel free to add to the discussion in the comments there.

Again, great work, Rob.

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A great job...

This is a great analogy rhare!  As you say, so many people don't get it when the numbers get large.

One of my pet peeves is to hear about a "budget cutting plan" on the news and the newscaster reels off a number without any reference to how this relates as a percentage to the overall budget.  Without that comparison it is only so much hot air devoid of any actual information (and in most cases if you actually calculated the true value of that plan it should probably be accompanied by a laugh track).

I will be forwarding copies of your explaination to friends as well...

Chip

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Great stuff

rhare wrote:

To recap your situation:

  • Revenue:  $100,000 /  year
  • Budget:   $149,181 / year
  • Deficit:     $49,181 / year
  • Debt:        $591,264 (on short term revolving credit)
  • Unfunded Liabilities:    $6,047,879
  • Republican Proposed Budget Cut:  $2,583 / year
  • Democrat Proposed Budget Cut:   $273 / year

Very good analogy but I think there are couple types of people that will take issue with it. 

First there are the bankers and their minions that will say the amount of debt does not matter, all that matters is if you can continue to make payments on it.  They have no problem with average people becoming debt slaves because that is actually how they want the system to work.  Debt slaves make for docile people.  For an example of this thinking see Hugh Hendry rip Jeffry Sachs a new one on Greece debt.

The other people that will take issue with this analogy is the sovereign currency supporters (Ellen Brown or Byron Dale).  They seem to believe that there is always a very simple fix to all these monetary problems, just have the sovereign create the needed money debt free.  Although I can see why they believe that this could work in the short term, this always seemed to be a long term disaster because it would completely divorce money creation from any sort of reality.  Money creation based upon the needs of the creator (governments in this case) verses the needs of the moneys end users (the people) would quickly become distortionary and and lead to misery.

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GROSS REVENUE?

darbikrash wrote:

Leaving aside the highly controversial subject of unfunded liabilities for just a moment, I have a few more numbers to add to the mix. Previous commentary has attempted to show that taxation of wealthy individuals and high income parties is insufficient to make any meaningful contribution to the Federal deficit and the 14T debt burden. Here are some figures to challenge and correct this assumption.

Consider that when we examine the far more meaningful income and taxation values for US based corporations, we can see a very different picture:

The most recent values I can get for corporate statistics are for FY 2007-2008.

Source.

1.)    Total assets of US corporations $81.5 Trillion

2.)    Gross (receipts) revenue: $28.8 Trillion

3.)    Income Subject to tax: $1.248 Trillion

4.)    Total tax paid after credits: $343 Billion

5.)   Total deductions allowed : $27 Trillion

Now, let’s unpack these numbers for a closer look. At first blush, the total tax rate appear to be a rather sensible 27.5% (Item 4 divided by Item 3). But what draws my attention is the total deductions allowed, which I break out as item 5, which is $27 Trillion in deductions allowing the corporations to draw down the gross revenues resulting in the taxable income figure of $1.248T. Pretty neat trick. Now to be fair, the IRS gives us a break out for Cost of Goods Sold, which decrements out of the total deductions, and to a large degree, I would be amenable to accept these values, (although there is game playing here as well) so let’s accept these at face value as legitimate deductions, to the IRS reported value of $15.5 T. So this leaves $11.5 Trillion in annual itemized deductions that US corporations are using to reduce their total tax liability.

I would say that this is a very significant sum of money that would have a profound and meaningful effect on the total Federal deficit, and the federal debt.

Darbikrash,

What exactly is the point of facts 1) and 2) ?  Fact 1) should only matter if you are suggesting we go Hugo Chavez and confiscate corporate assets.  I don't doubt that there are many that would like to do this but what exact moral argument would you use to justify this action. 

Fact 2) is also mostly irrelevant.  How does gross revenue matter in any way?  If a small business generates $1 million in sales but has costs of $950K, do you really think you can tax gross revenue and not completely destroy pretty much all enterprise?

I realize that you are trying to take some these cost into account by including the IRS data, but are you really suggesting that in $28 trillion in gross revenue, there is really $11.5 trillion in actual profit?  That would come out to a profit of >40% of gross revenue?  Can you point to some corporate examples where you think there is that sort of profit on gross revenue?  Just realize that to get anywhere near 40% of all gross revenue, there must be some companies that make far > 40% because some companies have revenues and still loose money and go out of business.

I do agree that there is a lot of abuse in corporate deductions.  I am also sure that many corporations controlled by individuals, are used as tax dodges and slush funds.  How many deductions for corporate jets, or food and travel expenses are used by the rich to maintain their lifestyle and minimize paying taxes?  I am sure that it is a lot but $11 trillion, I don't think so.

Honestly I think if you believe that average corporate profit is anything close to 40% of GROSS REVENUE, I must question your economic understanding of the current system.

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As to what darbikrash posted

RHARE, great post and excellent way to explain this situation we are in.  But I think there is some credibility in darbikrash's post also. All I know about money is this. Once you have accumulated mass quantities of for your own personal gain? It corrupts you. There are very rich Old Moneyed people in this country who have very, very large sums of money parked in tax exempt funds. Supposedly for philanthropical purposes of grants to universities (which usually do research that favors the donors ideas/products, then this is paid for threw the nose to borrow a working class term, by the working class and the Old Money people continue to accumulate massive wealth while the working class struggles to live.) Does that sound fair?  If they have a problem with the way the government spends the money, then they should lobby congress to change the way the system is run. Instead what I see is business as usual. Bribe the career politicians to pass tax shelter laws that  benefit those who supposedly run our wonderful economy. Which is not economic by the way. I think what darbikrash is trying to point out is that the system is tilted a little too far to the other side. Should we go Chavez? Again, I think that massive amounts of personal wealth is corrupting. With the morals that are displayed on Wall Street, which even Chris Martenson grew tired of. There is a lot to be said about taxing these people at much, much higher rates and removing some of their tax shelters. Now my opinion on this subject may not be correct. I grew up very poor, in a bad neighborhood. College was not on the menu for me. But I am looking at it from the point of  a family of five living on less than 30K a year.  Does anyone actually NEED 50 Billion dollars in accumulated weath? I understand that some of that money may be working for them. But personally if you cannot live a simple life to conserve the natural resources that exist on this planet  then you are no good to humanity. These mega rich people are piranhas in my view. Always wanting to build some other huge mall, office building or anything that builds their own personal wealth.  Yes, they  provide jobs, working to middle to upper class. And why do we even have a class based system?  I know that the mega rich cannot control how their workers spend their own money. But along with a job they could offer responsible money management courses. This would only benefit the company, right? Or do the mega rich just want debt laden slobs who slug off to their low paying jobs everyday?  It is going to take generations to change the irresponsible nature that has become the American Dream. But the rich have benefitted entirely too much to want to change it . Just the way I see it. I am sorry if it is not correct and I welcome rebuttal.

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Excellent post rhare.  I

Excellent post rhare.  I have been passing it around to my coworkers.

(as an aside on my other post where you took issue with my advice to deny you owe a debt in court as immoral.  You always deny in court and let the other side show their paperwork which they NEVER have)  Anyway since when are courts moral. Smile

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New Updated Article under the blog section

NOTE: This article was added to the "What Should I Do Series" and has been updated with help from many of you here at CM, particularly Travlin.  I suggest posting any comments on that blog so that they are all together.  It can be found here.

--------------------------------------------------

concernedcitizenx5 wrote:
Does anyone actually NEED 50 Billion dollars in accumulated weath?

But who get's to decide how much is too much?  That's a problem since once you start deciding to dictate control over others lives it's a slippery slope.  But it doesn't really matter.  If you take all the people with $1B or more, pretty much the Forbes 400 list and you take all their wealth, not tax some portions but confiscate it, it's only 1.3 or so Trillion.  It would only cover the deficit for 1 year, then we're back exactly where we are today.  The point of the article is that there is not enough wealth in the US to cover our problems.

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Those are mind numbing

Those are mind numbing numbers.     But seem to have one connection linking them----government.

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And in today's NY Times, an

And in today's NY Times, an explanation that is decidely missing from contempoary dialogue:

G.E.’s Strategies Let It Avoid Taxes Altogether

A Lobbying Powerhouse

Articles in this series will examine efforts by businesses to lower their taxes and the debate over how to improve the tax system.

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.

While General Electric is one of the most skilled at reducing its tax burden, many other companies have become better at this as well. Although the top corporate tax rate in the United States is 35 percent, one of the highest in the world, companies have been increasingly using a maze of shelters, tax credits and subsidies to pay far less.

In a regulatory filing just a week before the Japanese disaster put a spotlight on the company’s nuclear reactor business, G.E. reported that its tax burden was 7.4 percent of its American profits, about a third of the average reported by other American multinationals. Even those figures are overstated, because they include taxes that will be paid only if the company brings its overseas profits back to the United States. With those profits still offshore, G.E. is effectively getting money back.

Such strategies, as well as changes in tax laws that encouraged some businesses and professionals to file as individuals, have pushed down the corporate share of the nation’s tax receipts — from 30 percent of all federal revenue in the mid-1950s to 6.6 percent in 2009.

Yet many companies say the current level is so high it hobbles them in competing with foreign rivals. Even as the government faces a mounting budget deficit, the talk in Washington is about lower rates. President Obama has said he is considering an overhaul of the corporate tax system, with an eye to lowering the top rate, ending some tax subsidies and loopholes and generating the same amount of revenue. He has designated G.E.’s chief executive, Jeffrey R. Immelt, as his liaison to the business community and as the chairman of the President’s Council on Jobs and Competitiveness, and it is expected to discuss corporate taxes.

“He understands what it takes for America to compete in the global economy,” Mr. Obama said of Mr. Immelt, on his appointment in January, after touring a G.E. factory in upstate New York that makes turbines and generators for sale around the world.

A review of company filings and Congressional records shows that one of the most striking advantages of General Electric is its ability to lobby for, win and take advantage of tax breaks.

Over the last decade, G.E. has spent tens of millions of dollars to push for changes in tax law, from more generous depreciation schedules on jet engines to “green energy” credits for its wind turbines. But the most lucrative of these measures allows G.E. to operate a vast leasing and lending business abroad with profits that face little foreign taxes and no American taxes as long as the money remains overseas.

Company officials say that these measures are necessary for G.E. to compete against global rivals and that they are acting as responsible citizens. “G.E. is committed to acting with integrity in relation to our tax obligations,” said Anne Eisele, a spokeswoman. “We are committed to complying with tax rules and paying all legally obliged taxes. At the same time, we have a responsibility to our shareholders to legally minimize our costs.”

The assortment of tax breaks G.E. has won in Washington has provided a significant short-term gain for the company’s executives and shareholders. While the financial crisis led G.E. to post a loss in the United States in 2009, regulatory filings show that in the last five years, G.E. has accumulated $26 billion in American profits, and received a net tax benefit from the I.R.S. of $4.1 billion.

But critics say the use of so many shelters amounts to corporate welfare, allowing G.E. not just to avoid taxes on profitable overseas lending but also to amass tax credits and write-offs that can be used to reduce taxes on billions of dollars of profit from domestic manufacturing. They say that the assertive tax avoidance of multinationals like G.E. not only shortchanges the Treasury, but also harms the economy by discouraging investment and hiring in the United States.

“In a rational system, a corporation’s tax department would be there to make sure a company complied with the law,” said Len Burman, a former Treasury official who now is a scholar at the nonpartisan Tax Policy Center. “But in our system, there are corporations that view their tax departments as a profit center, and the effects on public policy can be negative.”

The shelters are so crucial to G.E.’s bottom line that when Congress threatened to let the most lucrative one expire in 2008, the company came out in full force. G.E. officials worked with dozens of financial companies to send letters to Congress and hired a bevy of outside lobbyists.

The head of its tax team, Mr. Samuels, met with Representative Charles B. Rangel, then chairman of the Ways and Means Committee, which would decide the fate of the tax break. As he sat with the committee’s staff members outside Mr. Rangel’s office, Mr. Samuels dropped to his knee and pretended to beg for the provision to be extended — a flourish made in jest, he said through a spokeswoman.

That day, Mr. Rangel reversed his opposition to the tax break, according to other Democrats on the committee.

The following month, Mr. Rangel and Mr. Immelt stood together at St. Nicholas Park in Harlem as G.E. announced that its foundation had awarded $30 million to New York City schools, including $11 million to benefit various schools in Mr. Rangel’s district. Joel I. Klein, then the schools chancellor, and Mayor Michael R. Bloomberg, who presided, said it was the largest gift ever to the city’s schools.

G.E. officials say the donation was granted solely on the merit of the project. “The foundation goes to great lengths to ensure grant decisions are not influenced by company government relations or lobbying priorities,” Ms. Eisele said.

Mr. Rangel, who was censured by Congress last year for soliciting donations from corporations and executives with business before his committee, said this month that the donation was unrelated to his official actions.

Defying Reagan’s Legacy

General Electric has been a household name for generations, with light bulbs, electric fans, refrigerators and other appliances in millions of American homes. But today the consumer appliance division accounts for less than 6 percent of revenue, while lending accounts for more than 30 percent. Industrial, commercial and medical equipment like power plant turbines and jet engines account for about 50 percent. Its industrial work includes everything from wind farms to nuclear energy projects like the troubled plant in Japan, built in the 1970s.

Because its lending division, GE Capital, has provided more than half of the company’s profit in some recent years, many Wall Street analysts view G.E. not as a manufacturer but as an unregulated lender that also makes dishwashers and M.R.I. machines.

As it has evolved, the company has used, and in some cases pioneered, aggressive strategies to lower its tax bill. In the mid-1980s, President Ronald Reagan overhauled the tax system after learning that G.E. — a company for which he had once worked as a commercial pitchman — was among dozens of corporations that had used accounting gamesmanship to avoid paying any taxes.

“I didn’t realize things had gotten that far out of line,” Mr. Reagan told the Treasury secretary, Donald T. Regan, according to Mr. Regan’s 1988 memoir. The president supported a change that closed loopholes and required G.E. to pay a far higher effective rate, up to 32.5 percent.

That pendulum began to swing back in the late 1990s. G.E. and other financial services firms won a change in tax law that would allow multinationals to avoid taxes on some kinds of banking and insurance income. The change meant that if G.E. financed the sale of a jet engine or generator in Ireland, for example, the company would no longer have to pay American tax on the interest income as long as the profits remained offshore.

Known as active financing, the tax break proved to be beneficial for investment banks, brokerage firms, auto and farm equipment companies, and lenders like GE Capital. This tax break allowed G.E. to avoid taxes on lending income from abroad, and permitted the company to amass tax credits, write-offs and depreciation. Those benefits are then used to offset taxes on its American manufacturing profits.

G.E. subsequently ramped up its lending business.

As the company expanded abroad, the portion of its profits booked in low-tax countries such as Ireland and Singapore grew far faster. From 1996 through 1998, its profits and revenue in the United States were in sync — 73 percent of the company’s total. Over the last three years, though, 46 percent of the company’s revenue was in the United States, but just 18 percent of its profits.

Martin A. Sullivan, a tax economist for the trade publication Tax Analysts, said that booking such a large percentage of its profits in low-tax countries has “allowed G.E. to bring its U.S. effective tax rate to rock-bottom levels.”

G.E. officials say the disparity between American revenue and American profit is the result of ordinary business factors, such as investment in overseas markets and heavy lending losses in the United States recently. The company also says the nation’s workers benefit when G.E. profits overseas.

“We believe that winning in markets outside the United States increases U.S. exports and jobs,” Mr. Samuels said through a spokeswoman. “If U.S. companies aren’t competitive outside of their home market, it will mean fewer, not more, jobs in the United States, as the business will go to a non-U.S. competitor.”

The company does not specify how much of its global tax savings derive from active financing, but called it “significant” in its annual report. Stock analysts estimate the tax benefit to G.E. to be hundreds of millions of dollars a year.

“Cracking down on offshore profit-shifting by financial companies like G.E. was one of the important achievements of President Reagan’s 1986 Tax Reform Act,” said Robert S. McIntyre, director of the liberal group Citizens for Tax Justice, who played a key role in those changes. “The fact that Congress was snookered into undermining that reform at the behest of companies like G.E. is an insult not just to Reagan, but to all the ordinary American taxpayers who have to foot the bill for G.E.’s rampant tax sheltering.”

A Full-Court Press

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.

According to its 2007 regulatory filing, the company saved more than $1 billion in American taxes because of that law in the three years after it was enacted.

By 2008, however, concern over the growing cost of overseas tax loopholes put G.E. and other corporations on the defensive. With Democrats in control of both houses of Congress, momentum was building to let the active financing exception expire. Mr. Rangel of the Ways and Means Committee indicated that he favored letting it end and directing the new revenue — an estimated $4 billion a year — to other priorities.

G.E. pushed back. In addition to the $18 million allocated to its in-house lobbying department, the company spent more than $3 million in 2008 on lobbying firms assigned to the task.

Mr. Rangel dropped his opposition to the tax break. Representative Joseph Crowley, Democrat of New York, said he had helped sway Mr. Rangel by arguing that the tax break would help Citigroup, a major employer in Mr. Crowley’s district.

G.E. officials say that neither Mr. Samuels nor any lobbyists working on behalf of the company discussed the possibility of a charitable donation with Mr. Rangel. The only contact was made in late 2007, a company spokesman said, when Mr. Immelt called to inform Mr. Rangel that the foundation was giving money to schools in his district.

But in 2008, when Mr. Rangel was criticized for using Congressional stationery to solicit donations for a City College of New York school being built in his honor, Mr. Rangel said he had appealed to G.E. executives to make the $30 million donation to New York City schools.

G.E. had nothing to do with the City College project, he said at a July 2008 news conference in Washington. “And I didn’t send them any letter,” Mr. Rangel said, adding that he “leaned on them to help us out in the city of New York as they have throughout the country. But my point there was that I do know that the C.E.O. there is connected with the foundation.”

In an interview this month, Mr. Rangel offered a different version of events — saying he didn’t remember ever discussing it with Mr. Immelt and was unaware of the foundation’s donation until the mayor’s office called him in June, before the announcement and after Mr. Rangel had dropped his opposition to the tax break.

Asked to explain the discrepancies between his accounts, Mr. Rangel replied, “I have no idea.”

Value to Americans?

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.

“We are a diverse company, so there are a lot of issues that the government considers, that Congress considers, that affect our shareholders,” said Gary Sheffer, a G.E. spokesman. “So we want to be sure our voice is heard.”

rhare's picture
rhare
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Joined: Mar 30 2009
Posts: 1271
More corporate bashing, more evidence of poor math skills.

darbikrash wrote:
The assortment of tax breaks G.E. has won in Washington has provided a significant short-term gain for the company’s executives and shareholders. While the financial crisis led G.E. to post a loss in the United States in 2009, regulatory filings show that in the last five years, G.E. has accumulated $26 billion in American profits, and received a net tax benefit from the I.R.S. of $4.1 billion.

WOW! A whole $4.1 billion over the last 5 years!  That sure is a lot!  So let's see, if we break it down, it works out to ".07/share/year".  So the devil himself, Jeffrey Immelt, the evil bastard, made a whole $121,839 extra per year.  Since his salary is 3.3M with a bonus of 5.8M, I'm sure that extra $122K is really important to him.

While I agree GE is evil for many other reasons, this article is nothing but political rhetoric, corporate bashing and a distraction from the true magnitude of the problem.  Lets say we collected that extra $820M each of the years, it would pay for a whopping 1 hour 52 minutes 49 seconds at our current rate of federal spending!  Whoo hoo - budget problem solved!  I wonder if there are another 4,500 GE sized companies from which to collect, those evil, evil corporations. Money mouth

So, to put this type of thing into perspective, lets say we tax 100% of their total profit, $75 billion (that's gross profit).  It amounts to about the same as the Republicans suggested cuts, a pittance.

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Poet
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Posts: 1844
Death Of A Thousand Cuts

rhare wrote:

...While I agree GE is evil for many other reasons, this article is nothing but political rhetoric, corporate bashing and a distraction from the true magnitude of the problem.

Okay, so there aren't 4,500 other companies the size of G.E. However, quite a lot of companies do get away with not paying a lot of taxes. Exxon-Mobil, Google, etc.

And while getting G.E. or even all corporations to be better citizens wouldn't solve the real problem, these are all part of the general malaise and death of a thousand cuts that permeates our country - another sign of the times.

It's like when you're in Mexico and you have to bribe the policia not to give you a ticket, and the building inspector and the mayor all expect their cut, because they see what happens at the top and want their piece of the action, too. This becomes a  normal and expected part of everyday life.

You got the person applying for disablity payments when not disabled, the welfare cheat who has more babies, the corporation that buys lobbyists and politicians to lower its own taxes, the young, unemployed person who finds it easier to sit at home and surf the web rather than get a job in on a farm field.

These are all symptoms of a much larger problem, which for lack of a better term, I call an endemic lack of character amongst people and corporations, and no sense of accountability nor propriety. Another ilttle nail in the coffin of our nation. The nails have been accumulating for quite some time now...

G.E., and a lot of corporations and people living in America, could use some serious character education.
http://charactercounts.org/michael/2011/03/the_doctrine_of_relative_filt...
http://charactercounts.org/michael/

Poet

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darbikrash
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Posts: 573
2+2=5?

rhare wrote:

While I agree GE is evil for many other reasons, this article is nothing but political rhetoric, corporate bashing and a distraction from the true magnitude of the problem. 

Corporate bashing? LOL.

Firstly, I do agree the budget deficit situation is dire, and without an easily visualized solution. So with that statement out of the way, there are some rather serious discrepancies in your conclusions.  To start, the notion that we are simply going to look the other way when our political system allows, even encourages companies to hire lobbyists with the explicit intention to defraud American taxpayers by introducing favorable legislation lowering their effective tax rate is not going to fly. I do not care how fatalist you want to position this, this argument of not caring because it won’t matter anyway is not too deep a dive into hyperbole to label as treasonous.

Those that will want to hasten the privatization of our entire society will no doubt be profoundly disappointed with this steadfastedly stubborn point of view, but from where I sit, every company that does business in the US market will pay their fair share of the taxes, in a similar magnitude as my Chapter S does, until the last FRN vaporizes.

The argument that this sort of thing is accepted, and then quickly followed by conservative initiates to truncate entitlement programs, all the while flinging $1.5MM apiece cruise missiles at Libya (124 missiles spent at last count) is a national disgrace. Take a look at the $11 trillion dollar federal deductions that corporate America is utilizing as outlined in my post # 3 above. Note that the amount of total allowable deductions is up 15.4% from the previous fiscal year. I find it rather curious that you do not mention this in any of your presentations, rather, you focus solely on the personal income and the impossibility of personal taxation to address the deficit, and completely ignore corporate income. And especially the $11trillion dollars in annual deductions.  Now you can fairly dispute how much of these deductions are legitimate and how many are not, rest assured that any and all of the corporations paying tax will tell you that it is too high, and that they do not get anywhere near enough deductions.

This tactic is called the “valorization of capital” and has been around for nearly 200 years.

For the sake of a sanity check, take the total assets reported to IRS from my post # 3 above, and divide by the net income also reported to IRS. I’ll do the math for you, you’ll get a 1.53% return on assets. So let’s say your CEO of the Cosmo-Demonic Telegraph Company with $1BN in capitalized assets, and you go before the board to report current earnings. Your number? 1.53% of assets. I’d suggest you stock up on cardboard signs and magic markers, because your next engagement will be roadside with a “work for food” sign. At that rate of return, the shareholders would surely sell off all assets, close the factories, fire all employees, and have Blohm and Voss build themselves a new 200’ luxury yacht to cruise the Med while they count the interest accrual of $1BN now deposited in John Paulson 's latest hedge fund, which returned some 15%+ last year. Obviously, the actual net profit is substantially higher than what is being reported as taxable income. $11trillion higher? No, but it deserves a look.

So G.E profits to the tune of $26 billion, yet receives a TAX CREDIT of $4.1 Billion. Rhare, they got a REFUND. At a 35% nominal tax rate against $26BN would, for you and I anyway, would result in a tax LIABILITY of $8.6 BN, but they got a REFUND (credit) of $4.1 BN. Math skills? What is the aggregate cost to the taxpayer? My “math skills” say $12.7 BN.

Maybe you’re OK with that, but I’m not. Most certainly the point is not show how little it matters, it is that it is happening at all. I doubt very many Americans that are writing checks this week to the IRS are OK with it either. And scandalous as it may be, as Marxist and Statist as it may seem to you, rational people who have even a passing interest in understanding the nature of our debt catastrophe are not interested in sticking our collective heads in the oven until we understand where the money went! And where it is still going. And when this is understood,  when reconciled, however that may turn out it will look markedly different than what you propose in the “explanation” that leads off the thread.

Poor math skills?

Well, there is a little manner of a balance sheet, which is to say if you are going to present US total unfunded liabilities as part of your calculus, and then make the case that nothing matters as the numbers you put forth cannot possible reconcile, well that may well be. But for some of us that actually read balance sheets, we might pose a pretty simple question. WHERE IS THE ASSET COLUMN? Perhaps I just missed it, but for those of us that are interested in math and not rhetoric, we might well ask how you can conclude that a financial situation is irreconcilable when there is only a column for liabilities AND NO ASSET COLUMN.

Just for grins, what is the value of the  assets of the United States? You know, all the real estate owned by the people (around 1 BN acres), the oil reserves, the “stuff”. I do realize they this just takes all the air out of the room, and certainly spoils the Libertarian fun fest, but seriously, do you know? Is not this quantity pretty, well, important in reconciling a balance sheet for, oh I don’t know, net worth?

(Hint: its upwards of $200 trillion)

Z1 Flow of Funds

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Jim H
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Posts: 1626
Could we? Would we?

Darbikrash... you are one smart cookie.  There is no doubt in my mind that if we did come to our senses as a nation.. say under the leadership of someone like Chris Christie.. that we could right the ship.  We have the wealth (net worth as you point out) and I would gladly sell my PM's, go to cash, and give up a meaningful fraction of my savings to the cause of saving our country if it were part of a comprehensive reform whereby we were going to live within out means, and allow markets to be free of FED manipulation.  I really would.  

But this is the part that really tells the story;

  • Republican Proposed Budget Cut:  0.0615T   (61.5B)
  • Democrat Proposed Budget Cut:   0.0065T   (6.5B)
  • It's just not happening (sorry, I can't escape this bulleted formatting here) ... we have no political will to reform.  It's really every person for themselves at this point I am afraid. 

dshields's picture
dshields
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Posts: 599
I can't do it

I can't do it and I have tried.  People look at me like I am a three headed crazy.  The wild man from Borneo.  I hate to say this but the reason they think it is crazy is they have no clue what is going on around them.  I like them and they are my friends.  I am sure I can loan them money and they will pay me back.  However, they do not have a clue.  They are completely tuned out.  They live their every day lives.  They go to work, they go to school, they go grocery shopping, they chase their kids around, and they have no idea what is going on.  They do not watch the news on purpose.  The purpose is they do not like to watch it.  It does not have any meaning for them.  They watch Cops, Dumbest Criminals, dancing, singing, movies, you name it - anything but the news.  They just do not know.  So, when I start going on about this and that they just look at me and figure I am high strung and confused.

I gave up.

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goes211
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Posts: 1110
Profit is 40% of Gross Revenue on what planet?

darbikrash wrote:

The argument that this sort of thing is accepted, and then quickly followed by conservative initiates to truncate entitlement programs, all the while flinging $1.5MM apiece cruise missiles at Libya (124 missiles spent at last count) is a national disgrace. Take a look at the $11 trillion dollar federal deductions that corporate America is utilizing as outlined in my post # 3 above. Note that the amount of total allowable deductions is up 15.4% from the previous fiscal year. I find it rather curious that you do not mention this in any of your presentations, rather, you focus solely on the personal income and the impossibility of personal taxation to address the deficit, and completely ignore corporate income. And especially the $11trillion dollars in annual deductions.  Now you can fairly dispute how much of these deductions are legitimate and how many are not, rest assured that any and all of the corporations paying tax will tell you that it is too high, and that they do not get anywhere near enough deductions.

I think it is our Nobel Peace Prize winning President that is the one launching the cruise missiles.  Unfortunately many neo-conservative war mongers are there to back him up.

There you go quoting the $11 trillion figure again.  You still have not explained how in $28.8 Trillion of "Gross (receipts) revenue" you think that corporate American has over $11 trillion in profits that need to be taxed.  That comes out to around a 40% profit on GROSS REVENUE!  Surely since this is in aggregate, you can point to many examples that exceed this level of profit.  Can you name some names?

As for GE and other corporations, I don't see anyone around here supporting corporate wellfare.  Go ahead and simplify the tax code, lower the rates and remove loopholes.  You will have a lot of support from everyone except the corporations and those in congress that handout these favors as if they are members of an organized crime family.

Hey I got an idea.  Lets appoint Jeffrey Immelt, CEO of GE which is the biggest recipient of government largess, as "chairman of the Council on Jobs and Competitiveness".  That way he can show all his other corporate friends how to manipulate the system and make the crazy taxes and regulation work to their advantage.  This would actually be funny if it was not so sad.

You seem to think this is a conservative problem but this is happening under the Obama administration.  It has nothing to do with liberal or conservative, only rich and powerful vs weak and powerless.

darbikrash wrote:

Poor math skills?

Well, there is a little manner of a balance sheet, which is to say if you are going to present US total unfunded liabilities as part of your calculus, and then make the case that nothing matters as the numbers you put forth cannot possible reconcile, well that may well be. But for some of us that actually read balance sheets, we might pose a pretty simple question. WHERE IS THE ASSET COLUMN? Perhaps I just missed it, but for those of us that are interested in math and not rhetoric, we might well ask how you can conclude that a financial situation is irreconcilable when there is only a column for liabilities AND NO ASSET COLUMN.

Just for grins, what is the value of the  assets of the United States? You know, all the real estate owned by the people (around 1 BN acres), the oil reserves, the “stuff”. I do realize they this just takes all the air out of the room, and certainly spoils the Libertarian fun fest, but seriously, do you know? Is not this quantity pretty, well, important in reconciling a balance sheet for, oh I don’t know, net worth?

(Hint: its upwards of $200 trillion)

OK, are these $200 trillion worth of assests you are refering to (1 billion acres of land, oil, ....) already under federal ownership?   If so are you really suggesting the government liquidate these assets so as to meet future obligations?  If not then what exactly are you saying?

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rhare
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Posts: 1271
Statists can't do math....

darbikrash wrote:
To start, the notion that we are simply going to look the other way when our political system allows, even encourages companies to hire lobbyists with the explicit intention to defraud American taxpayers by introducing favorable legislation lowering their effective tax rate is not going to fly. I do not care how fatalist you want to position this, this argument of not caring because it won’t matter anyway is not too deep a dive into hyperbole to label as treasonous.

I don't believe I've ever said this is okay.  I do believe I said there are much larger problems to solve than worrying about this small issue at this time.

darbikrash wrote:
What is the aggregate cost to the taxpayer? My “math skills” say $12.7 BN.

Well, my math say's otherwise. Since all you that say look, evil corporations don't pay 35% tax, but you seem to neglect that much of the tax does get paid, either 15% or 25% capital gain by the shareholder. So your looking at either 10% or 20%.  But it still doesn't matter.  Perhaps we should worry about taxes paid by corporations, but right now it's like worrying about a splinter when you have the patient bleeding out from an artery.  Once we get the hemorrhaging under control then discuss the splinter.  Otherwise your simply going to kill the patient.

Also, I always hear about how the corporation is evil and to blame, but never the government side of the equation.  What about all the politicians that have the power to grant favors by confiscating wealth from part of the population and giving it to another?  Why do we allow politicians to create special loop holes and special laws to favor some industries or groups over others? I do not have a problem with us deciding to tax corporations or individuals, but I want it honest and direct.  Ditch the 75,000 pages of tax law and say 35% all coporations on gross profit - no exceptions.  No problem with that, but you and the rest of your statist friends never seem to bring up the government part of the equation.  It's always the coporations and more government is always the solution.

As far as the wars, yes, we should pull out completely.  It's not constitutional, it's morally wrong, we can't afford it, and we need to take a non-intervention policy. So no argument there, not even sure why you decide to go down that path other than for more political reasons.

darbikrash wrote:
Well, there is a little manner of a balance sheet, which is to say if you are going to present US total unfunded liabilities as part of your calculus, and then make the case that nothing matters as the numbers you put forth cannot possible reconcile, well that may well be. But for some of us that actually read balance sheets, we might pose a pretty simple question. WHERE IS THE ASSET COLUMN?

I have pointed this out to you many times. Perhaps this time you will get it: Total US assets : 54.9T.  You can find others from various sources I'm sure, but they will generally be in the range of $55T to 100T.  Your $200T figure, oh yeah, from the Fed, and actuall tangible assets (your know the land, oil reserves, etc that you point out from that same link) are $46T, the rest is financial assets (paper wealth).  So, lets see you actually think the $188T is real?  Perhaps you are more confused and delusional than I thought!

So I think the $54T is far more accurate, yet we have unfunded liabilities (NPV) of $114T.  So even if you confiscate all wealth in the US, still not enough.  An who would you sell it too?  How likely are we to grow given the 3 E's?

So no I don't think you can actually do math.  As long as people keep worrying about these inconsequential amounts and ignoring the huge proplem we are never going to even have real conversations about the problems we face.

soulsurfersteph's picture
soulsurfersteph
Status: Silver Member (Offline)
Joined: Jun 16 2010
Posts: 204
hatin' on the rich

You know, I don't think any amount of numerical proof will dissuade some people of their absolute unmitigated anger and hatred towards corporations and the uber rich.

They blame corporations for all the problems in the world, and hate on the rich because they aren't rich themselves.

Corporations can be corrupt, but so can workers unions, co-ops, new age ashrams, churches, non-profits, governments, and any number of organizations that involve human beings. Some of the most well-intentioned groups end up being a mess because people are flawed.

Furthermore, let's also drop this notion that the rich are somehow getting a better life than the rest of us. Anyone I've known personally who was a trust fund child was screwed up mentally and emotionally, either on drugs or alcohol or veering towards suicide. In fact, I had a trust fund friend who fell off the place of the planet. I have this horrible feeling she killed herself, she was in and out of mental institutions so many times.

OK, so maybe your house is bigger and you get to go on more vacations and wear more expensive clothes. That doesn't give you inner peace.

Bottom line: The rich aren't any happier...and corporations are run by humans, the very same humans who screw up all sorts of organizations. I know we humans have a tendency to want to look for enemies to blame but as I recall, it was not just the bankers who screwed up with the housing bubble, but greedy average Americans who got mortgages they could not afford because they just "had" to have that McMansion. I had a few people in my life selling those shady mortgages to gullible people, and they were totally oblivious to the long-term damage they were doing.

This doesn't mean we can't criticize...I certainly do fault Wall Street to a great extent, but I don't demonize corporations just because they are incoporated! But it's this idea that somehow the world would be better off if we had no corporations that gets me. I like many big corporations. They give me cellphones and nifty gadgets and a comfortable lifestyle. I'll miss them when the collapse happens.

People are just...human. Try to forgive and get past your outrage over everything. My two cents. :-)

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darbikrash
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Posts: 573
More 2+2=5

rhare wrote:

Well, my math say's otherwise. Since all you that say look, evil corporations don't pay 35% tax, but you seem to neglect that much of the tax does get paid, either 15% or 25% capital gain by the shareholder. So your looking at either 10% or 20%.  But it still doesn't matter.  Perhaps we should worry about taxes paid by corporations, but right now it's like worrying about a splinter when you have the patient bleeding out from an artery.  Once we get the hemorrhaging under control then discuss the splinter.  Otherwise your simply going to kill the patient.

Sub chapter S corporations and REIT entities pass taxation through to shareholders. “C” corporations pay tax at the corporate level. As I noted in post # 3, of the 5.9 million corporate filings, 4.0 million were chapter S or REIT. If you look further at the IRS source data (2007 FY, page 4 figure C) you will note that the income figures for the C Corporations is more than 99% of the total of the numbers I listed.

The only pass through to shareholders is for dividend payments, and there is a limited amount of large C corps that do pay dividends, and most of those are in the 2%-4% range. So you might want to better understand the taxation strategy for C corporations before  introducing spurious arguments.

Bottom line I am asking that the C corporations pay tax at the same rate as I do in a sub chapter S. So that makes me a Statist? That makes me a hater? A basher of corporations and of the rich? This is a excellent example of the duplicity present in this means of thinking. When simply insisting on fairness and parity becomes a source of ridicule and dismissive rhetoric.

And I still cannot find your reference to assets of any kind, of any value in your post #1 leading off this thread, or the mirror thread under “What should I do”. Perhaps you could indulge me and provide  reference to exactly where, in these posts, you provide an entry of any kind for assets. Because the missing ASSET calculation means that something is very wrong with your thesis. I do however, find several instances where you’re quoting unfunded liabilities from $100T, then 6 days later, $144T, and now apparently $114T. All with “sources”.  Pretty big range wouldn’t you say?

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darbikrash
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Posts: 573
Leslie Stahl from 60 Minutes

Leslie Stahl from 60 Minutes must have read this thread, as last night there was a timely, relevant, and interesting segment on this very matter:

http://www.cbsnews.com/video/watch/?id=7360932n&tag=contentMain;cbsCarousel

After the head fake to journalistic unbiased reporting, she actually does a decent job outlining the conceptual issues- then brings in shill John Chambers, CEO of Cisco to play the spoiler role wrapping up the segment: (Note Chambers took down $19 million in total compensation for FY 2010)

It's really remarkable, as I review the data, is the consistency with which you see this phenomenon. The taxes are going down, the profits are shifting offshore at an accelerated rate over the last few years," Sullivan said.

So now these companies have profits accumulating overseas in places like Zug.

If they bring the money home, it's taxed the full 35 percent. If they leave it overseas, the IRS can't touch it. In other words, the tax law all but forces companies to keep their money out of the country, indefinitely.

"We leave the money over there. I create jobs overseas; I acquire companies overseas; I build plants overseas; and I badly want to bring that money back," John Chambers told Stahl.

Chambers told Stahl Cisco has almost $40 billion overseas that could be brought back to the U.S.

The total amount of money U.S. companies have trapped overseas is $1.2 trillion. Chambers is advocating for a one-time tax break to allow them to bring that money home at a rate of, say five percent. That would, he says, stimulate the economy and create jobs.

"What is your downside for money that isn't going to come back anyhow? I'd say your downside is zero," he told Stahl.

But the Obama administration opposed this idea. When it was tried in 2005, the Treasury did rake in billions of dollars, though very few jobs were created.

"What if tomorrow Congress passed a quickie law and the tax rate was 20 percent? Would that solve everything?" Stahl asked.

"I think it is the most important ingredient that we have to think about being competitive," Chambers replied.

"You lower the rate from 35 percent to 20 percent. You lose something like $2 trillion in taxes. We have a horrible deficit crisis, debt crisis. That's almost too much money to lose. What's your answer to that?" Stahl asked.

"My answer's very simple: every other developed country in the world has already done this. I'm not asking to give me a favor, or a hand out," Chambers replied.

"You know what: it sounds it," Stahl remarked.

Chambers replied, "All we're asking is: Give us a level playing field. Get us close."

Pains the heart to hear reedy voiced Chambers besiege Leslie Stahl, and by extension, the American people to “let him bring the money back” and to “just let us compete”. Think of all the jobs. Think of the spirit of the free market and the competitive instinct of all that is America. Why, you can fairly hear the meatheads kicking the coffee table and spilling the bucket of greasy chicken wings while yelling “Martha, the gubmint, they won’t let us COMPETE”.

Three words for you John Chambers:

Valorization of Capital.

In a masterstroke of dialectic issue positioning, the corporations have positioned this as debate of “20% corporate tax rate vs. 35% tax rate”. (So we can compete!) Heads I win and tails you lose. How so? Let’s break it down;

Issue 1. Keep your eye on the ball

The main play here is not the corporate tax rate, it’s how taxable income is defined, a concept far removed from many (if not most) Americans. But everybody knows what a percentage is, so this is where they drive the argument, obfuscating the real issue. To illustrate, consider the above post quoting the NY Times outline of GE’s receiving a tax REFUND from $26Bn worth of profits. This is because their taxable income is calculated at zero (less than zero actually- hence the refund). This is what you get when you have 975 tax professionals and attorneys working for you full time. So here’s the kicker- 20% of zero income is zero tax liability, 35% of zero income is zero tax liability, and 5000% of zero income is zero tax liability.

To see how this works, note the $11 trillion dollars in IRS allowed deductions for Chapter C corps (source, page 4, right column last paragraph, $11 trillion is what is remaining  of the allowable deductions after you back out deductions for Cost of Goods Sold).

The total receipts from operations and

investments increased from $27.4 trillion to $28.8

trillion, an increase of 4.97 percent. This increase

was primarily reflected in business receipts which

increased by 3.89 percent from $23.3 trillion to $24.2

trillion. Finance and Insurance, and Manufacturing

accounted for 46.95 percent of the increase in total

receipts and approximately 33.54 percent of the

increase in business receipts. The Finance and

Insurance sector experienced an increase of 10.33

percent in total receipts, from $3.7 trillion to $4.1

trillion; while business receipts increased from $1.9

to $2 trillion, an increase of approximately 3.65

percent.

Overall total deductions rose from $25.5 trillion to

$27 trillion, an increase of 5.77 percent. Since 2005,

the total amount of total deductions reported on

active corporate returns has increased 14.24

percent.

So the strategy is to reduce the taxable income to as low as you possibly can, by using lobbyists and captured politicians to introduce legislation that gives you specific dispensation to increase what you can deduct, and therefore lower what you claim as income. With this income figure,  now we can introduce the argument about tax rate, but for the Idiocracy, the game has already been lost, because 35% of zero is still zero.

Issue 2. Bait and Switch

While the masses argue passionately about the “correct” interest rate for corporations to pay, Game # 2 is on with a vengeance, as outlined (accurately) in the 60 Minutes piece. You see, if you cannot get enough deductions, (to get to the goal of zero taxable income) you just move the money out of the country, and with some tricky accounting concerning subsidiaries you can now DEFER the income.

Now, pay attention to this word, DEFER. This means you still have to pay tax on this income, just not while it is outside US soil.

So what to do? Well, you just tap your friendly politician that has received your handsome campaign contributions, and get a bill passed for a one time exemption. Except that these “one time “exemptions happen fairly frequently, such as whenever the offshore kitty starts getting big and the big boys want to repatriate the cash- at a ridiculously low interest rate, or even zero.

Issue 3. The rest of us.

This one is easy. We citizens and S corps pay 35% nominal tax rate.

And now you know where the money went. And where it is still going.

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