Governments Don’t Overspend, Corporations Don’t Pay

Posted: March 27, 2011 in Economy, Education, Obama, Power, Tea Party, U.S. Politics

Many of us suspected as much.  A recent New York Times expose of General Electric proved that though in 2010 this multi-billion dollar corporation “reported worldwide profits of $14.2 billion,” it paid no U.S. taxes on that profit.  In fact, “G.E. claimed a tax benefit of $3.2 billion!” This abomination was made possible by two political economic processes.  First, as a multinational corporation, G.E. has production, financial, and management operations spread throughout the world.  Second, it makes use of “an aggressive strategy that mixes fierce lobbying for tax breaks and innovative accounting that enables it to concentrate its profits offshore.”  G.E. employs very talented, often ex-government officials, to find loopholes in the tax laws and to lobby the Congress and the Executive to create the loopholes through which G.E. eliminates its tax burdens.

G.E. is not unique in the use of this strategy.  Every large corporation does it.  The statutory tax rate on corporations is 35 percent, something politicians rail as being too high.  In practice, it is much less.  The effective tax rate for corporations is down to 1950s levels. It was down to 6.6 percent in 2009.  One recent study showed that

“of the 275 Fortune 500 companies that made a profit each year from 2001 to 2003 and for which adequate information to draw conclusions is publicly available, only a small proportion paid federal income taxes anywhere near that statutory 35 percent tax rate. The vast majority paid considerably less.”

Going after G.E. is, thus, not enough.  This is a systemic problem that has transferred incredible amounts of wealth to the already wealthy and that threatens to create increasing tax burdens on the battered middle and working classes.  Worse, by avoiding taxes, these corporations have kept for themselves the tax revenues that governments in the U.S. need to maintain and expand public programs and investments.

This means that the right-wing attack on government spending is totally misplaced. Government has not overspent. Government was robbed by the rich.  Actually, government is very much complicit in this process.  The clearest example of this is President Obama’s appointment of Jeffrey R. Immelt, General Electric’s chief executive, to head the President’s Council on Jobs and Competitiveness.  The president commissioned this council to find ways to reform the corporate and individual tax codes.  The fox is not just in the hen-house, it lives there.

We are witnesses to a deep shift in our political economy.  On the surface, the current political debate is over whether government over-spends or whether we can continue to pay for the social safety net of programs that permit families to defend themselves, a little, from the wrath of the economy.  The reality is that there is plenty of wealth in this country.  We can afford to pay for good education, public transportation, safe and healthy environments, new energy investments, and more.  But we can’t pay for it because our wealthiest individuals and corporations make use of financial and global tools and strategies to avoid paying their fair share of taxes.  The wealthiest will argue that they are simply protecting their investors and to successfully compete in the global market.  They may very well be right.  But their competitiveness comes at the expense of the American people.

As politicians make increasing use of scare tactics, “we are broke” and “we have to tighten our belts,” imagine how different our current political decisions would be if we tax corporations at the levels mandated by the statutory tax codes.  I dare say that teachers, firemen, and social workers will pay the price for the incredible transfer of wealth to the wealthiest portion of our population.  The figure below shows how much less revenue the government receives from scheming corporations.

Share of U.S. Government Taxes Collected from Corporations

  1. […] Governments Don’t Overspend, Corporations Don’t Pay ( […]

  2. […] like the Medicare drug benefits, two expensive wars, and a sluggish economy.  I said as much in Governments Don’t Overspend and the Iraq Papers showed how unnecessary were the Iraq and Afghanistan wars.  In an interview, […]

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