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Need for Reform in Tax Code: G.E. and Other Large Corporations are Gaming the System

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There has been little talk about increasing revenue, despite the insistence of economists and former politicians from all across the political spectrum that spending cuts alone will not balance the budget and are likely to slow down or even stop the economic recovery. An article in last week's New York Times may help spark some interest in at least reforming the tax code in ways that could increase revenue.

According to the Times, last year General Electric reported profits of $14.2 Billion, with $5.1 Billion of that total coming from operations within the United States. But thanks to the tax experts in its in house law department, GE did not pay a single dime in US taxes. In fact, rather than pay taxes, GE has what amounts to its own in house tax law firm with over 900 employees and has spent over $200 Million in lobbying over the last ten years, with much of that being focused on lobbying for beneficial tax laws. One loophole in particular, referred to as active financing, is particularly troubling. When Congress was preparing to let it lapse, the GE lobbying team went into gear and managed to turn around Charles Rangel, then the Chairman of the House Ways and Means Committee. The loophole survived.



Active financing means that if a company sells something like say a jet aircraft and finances it overseas, then it pays no taxes on the interest or profits unless they bring the money back to the US. In short, it's a tax break that is only available to multinational corporations, and not to the millions of small businesses that drive our economy. And it's worth about $9 Billion per year in lost tax revenue. If that was the end of it, it would still be an egregious tax dodge that further harms our economy by encouraging US companies to finance large sales offshore and to keep the profits from those enterprises outside of the US. But what makes it worse is that companies can still receive tax breaks or tax credits on some of those sales, like green energy turbines, that can then be applied to their US tax liabilities. This is how companies like GE are able to have record breaking profits while paying little to no federal tax.

The US corporate tax rate is one of the highest in the developed world which has resulted in more companies moving manufacturing and jobs overseas. But tax loopholes that also encourage moving money and jobs out of the US while making the high domestic tax rate irrelevant aren't helping the situation any either, and are contributing to the budget crisis. President Obama has talked about reforming the system to cut the top rate while eliminating many of the loopholes and shelters. This would benefit the small businesses that can't take advantage of loopholes like active financing while requiring multinational corporations to play by the same rules as the rest of us.

April 15 is right around the corner - and this year I'm paying more taxes than General Electric. It's time for a change.


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