We can learn a lot about our political-economy — and the challenges we face — from a recent New York Times article that profiled General Electric, the nation’s largest corporation.
LESSON ONE is that U.S. corporations have become quite good at avoiding taxes. According to the New York Times:
[General Electric] 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.
Nice trick isn’t it. No wonder we are facing a growing fiscal crisis.
LESSON TWO is that U.S. corporations are now directly shaping public policy. As the New York Times reports:
In January, President Obama named Jeffrey R. Immelt, General Electric’s chief executive, to head the President’s Council on Jobs and Competitiveness. “He understands what it takes for America to compete in the global economy,” Mr. Obama said.
GE and other corporations have learned how to compete in the global economy all right—largely by using their influence to create extremely attractive tax laws and by employing innovative accounting which enables them to concentrate their profits in offshore tax havens. As the New York Times notes:
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.
Thanks to this corporate-government nexus, G.E. reported a tax burden equal to 7.4 percent of its American profits. Although a leader in this regard, it is far from unique—the corporate share of U.S. receipts has fallen from 30 percent of all federal revenue in the mid-1950s to 6.6 percent in 2009.
LESSON THREE is that U.S. corporations have shifted their operations away from goods production—finance is where the action is. According to the New York Times:
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. . . .
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.
LESSON FOUR is that U.S. corporations are increasingly accumulating their profits and moving their operations out of the U.S. As the New York Times explains:
As [GE] 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. . . .
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.
President Obama is right–GE does know how to complete in the global economy. Unfortunately, its strategies will not help strengthen our economy in ways responsive to majority needs. Given that President Obama has appointed its CEO to help chart our economic future, it is a safe bet that unless we develop an effective resistance, this future is not going to to be an attractive one for us.