The New York Times reported today that General Electric’s effective tax rate in 2010 was zero. Despite making $14.2 billion in profits, the company received $3.2 billion in tax benefits. GE is able to drive down its effective tax rate via “an aggressive strategy that mixes fierce lobbying for tax breaks and innovative accounting that enables it to concentrate its profits offshore.”
The fact that hugely profitable companies receive billions in benefits from taxpayers clearly makes the case for ending giveaways in the corporate tax code and cracking down on companies that use tax havens to shelter income overseas. However, Sen. Ron Johnson (R-WI), when asked about GE’s zero percent tax rate today on CNBC, replied that the real problem is the U.S. corporate tax rate is too high:
We have to be concerned about what the business environment is in the U.S. here. We can’t afford to have the highest tax rate in the world…Those are individual companies. I think overall, we really can’t be looking at a corporate tax rate much higher than 25 percent because that’s the world average. So we’re sitting up there at 35 percent, that’s just the wrong signal.
Needless to say, reducing the corporate tax rate to 25 percent without cutting down on loopholes, giveaways, and tax avoidance wouldn’t change much for companies that already pay nothing. And GE is hardly alone in this regard: Boeing, Bank of America, and ExxonMobil have all paid no taxes into the U.S. Treasury in recent years.
But Republicans had much the same reaction when Bloomberg blew the lid off of Google’s elaborate scheme to lower its tax rate all the way down to 2.4 percent. “I don’t know the individual facts of the Google situation. What I do know is that, second only to Japan, we have the highest corporate income tax rate of any industrialized nation of the world,” said Rep. Jeb Hensarling (R-TX).
U.S. corporate tax revenue has plunged to a historical low and corporate tax receipts here are less than they are in other developed countries. Particularly with the U.S. facing a long-term problem with its structural deficit, corporate tax reform should involve clearing the corporate tax code of its myriad loopholes and giveaways and raising additional revenue, so that the tax burden is not shifted onto small businesses and the middle-class.
Cross-posted on The Wonk Room.