March 31, 2011 -- "Immelt Must Go! Sign the Petition."
So goes the rallying cry of former Sen. Russ Feingold, whose group, Progressives United, backed by MoveOn.org, is demanding that General Electric Co. head Jeffrey Immelt step down as chairman of President Obama's Council on Jobs and Competitiveness.
GE CEO Immelt to ABC News: "People Get to Think What They Think"
The petition, issued Wednesday, is the latest sign of mounting public outrage after a New York Times story described how GE enjoyed worldwide profits of $14.2 billion in 2010 (including $5.1 billion from U.S. operations) but paid no U.S. corporate income tax. Moreover, it claimed a tax benefit of $3.2 billion.
"Someone like Immelt, who has helped his company evade taxes on its huge profits -- and is now looking to workers to take major pay cuts after his compensations was doubled -- should not lead the administration's effort to create jobs," Feingold, a Wisconsin Democrat, said.
In an interview, MoveOn's executive director, Justin Ruben, told ABC News senior White House correspondent Jake Tapper, "It is outrageous that GE made more than $14 billion in profits last year and paid no federal taxes. At a time when many in Washington, including the president, are worried about our nation's deficit, we should be punishing --not rewarding -- companies like GE who are robbing the U.S. government and taxpayers of billions of dollars.
"This sort of bad corporate behavior should not be rewarded with a top White House appointment. Jeff Immelt should resign immediately."
GE, in a statement, called the New York Times story "distorted and misleading," and said the assertion that GE paid no U.S. taxes "grossly simplified" the facts. By law, the company is not required to report how much it paid in U.S. taxes, nor is the IRS required to disclose it.
"GE paid significant U.S. income tax in 2010," says the GE statement (without specifying an amount), as part of "almost $23 billion of corporate income taxes" paid to governments around the world in the past 10 years.
General Electric would not be alone among corporations in using every legal means at its disposal to keep a lid on its taxes. Others include Boeing, according to the federal government, and Hewlett-Packard, a company spokeswoman confirmed.
While there's no question their tax avoidance withholds money from the U.S. Treasury, it's also true, too, that the money saved contributes to higher corporate profits, which benefit shareholders in the form of dividends and higher share prices.
"I'm in favor of companies doing everything they can, within the law, to avoid taxes," Senior Fellow Dan Mitchell of the CATO Institute in Washington D.C., said. "I think we're definitely better off with the shareholders getting the profits, rather than the politicians. It's good for the economy.
"Now, having said that, it's obviously not in America's best interest to have companies paying nothing because of special loopholes and special credits. We'd be better off with no loopholes and a simple, low rate. A flat tax. Under that system, GE in all likelihood would wind up paying a lot more than they would even under today's headline 35 percent rate."
Among corporations' most popular tax avoidance strategies is moving profits overseas, where they can accrue beyond the reach of the IRS. The U.S. corporate tax rate -- 35 percent -- is among the highest in the world. Companies suffer a smaller tax bite by keeping profits in low-tax havens such as Ireland, Switzerland and Singapore, or in Bermuda, where it's zero.
Keeping Money Oveseas?
How much money are U.S. corporations keeping overseas? Perhaps as much as $60 billion a year, according to a study published in December in the National Tax Journal.
A good indication of how much came in 2004, when Congress enacted a one-time break that allowed companies to repatriate their foreign earnings at an effective tax rate of 5.25 percent.
More than 840 corporations brought home $362 billion, of which about $312 billion qualified for the reduced rate, according to the IRS. Hewlett-Packard, for example, repatriated $14.5 billion of the money it had earned abroad, according to a company spokeswoman.
Boeing has maintained up to 38 subsidiaries in foreign tax havens, according to a 2008 report from the General Accounting Office. Although Citizens for Tax Justice has lambasted the company for not paying "a dime of U.S. federal corporate income taxes" between 2008 and 2010 -- years when the company reported nearly $10 billion in domestic pre-tax profits -- a Boeing spokesperson insisted the truth is more complicated, and that the company paid an average of $160 million a year in U.S. corporate income taxes for those three years.
GE keeps an increasing share of its profits overseas. But it also makes the most of "active financing," a tax break that allows multinationals to avoid paying tax on certain kinds of insurance and banking income.
When, for example, GE, through its lending arm, finances the sale of a jet engine in Ireland, it does not have to pay any U.S. tax on the income, provided the profits remain offshore. So popular has active financing become among corporations, that in 2008 the cost of the exemption to the U.S. Treasury was estimated at $4 billion a year.
"Transfer pricing" -- the minimization of the value of asset transactions between subsidiaries, especially ones overseas -- is used effectively by other companies.
Companies use what is called by tax experts a "Double Irish," in which the U.S. parent assigns ownership of intellectual property to an Irish subsidiary. A second Irish subsidiary pays royalties for its use, with the transaction going by way of the Netherlands and a tax haven such as Bermuda. Done right, the result is little or no tax paid anywhere to anyone.
Texas Democratic Rep. Lloyd Doggett has introduced a bill, "The International Tax Competitiveness Act," to make it harder for U.S. corporation to perpetuate such "shenanigans" by taxing the offshore income associated with intangibles (e.g., intellectual property) whose origin is in the United States.
As for GE's Immelt, a White House spokesman said Wednesday, "I would say that membership on the jobs council, as the president made clear, is not -- does not -- is not decided by agreement on every issue.
"The whole point of the jobs council is to get outside advice to help the president ... to generate ideas for the president."