April 18 looms like a specter at this time of year, casting a pall over the forsythia and daffodils that coax us to be cheerful. Like a sick child who longs to play outside on a sunny day but must remain confined, we itemizers are chained to desks or dining-room tables littered with receipts, calendars, checkbook registers and credit card statements for the annual spring ordeal.
Not that we file our own taxes. No, like 71 percent of Americans (according to Rasmussen), and like the overwhelming majority of members of Congress, including those on tax-writing committees, we pay someone else to prepare our taxes. The pencil-chewing dining-room table tribulation is merely the necessary antecedent to the actual preparation of a tax return by a professional.
The April 18 deadline predisposes one to sympathize with all other harassed taxpayers, so when The New York Times lambasted General Electric for paying no federal income tax, it occasions a second look.
“General Electric, the nation’s largest corporation, had a very good year in 2010,” the Times reported. “The company 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, GE claimed a tax benefit of $3.2 billion.”
The Times is clearly scandalized — and perhaps it should be. After all, at least some of the tax breaks GE has been able to take advantage of were the result of aggressive lobbying. The Times detects the scent of corruption in the 2009 story of GE’s tax lawyer plaintively pleading with then Ways & Means Chairman Charles Rangel to maintain a tax exclusion important to GE’s bottom line. Apparently, in a whimsical gesture, the lawyer actually dropped to one knee. Rangel changed his position.
“The following month, Mr. Rangel and Mr. (Jeffrey) Immelt stood together at St. Nicholas Park in Harlem as GE announced that its foundation had awarded $30 million to New York City schools, including $11 million to benefit various schools in Mr. Rangel’s district.”
There may be more to the story (Rangel denies a quid pro quo), but on its face, it stinks. At the same time, so much of what the Times decries about GE’s failure to pay more in taxes is based on false premises. The Times is outraged, for example, that GE is able to concentrate its profits offshore.
But as the chief cheerleader for higher taxes of every kind, including high corporate tax rates, the Times should not be surprised that companies respond rationally to these incentives and seek ways to avoid taxes. The Times seeks out Len Burman of the “nonpartisan” Tax Policy Center (actually, it’s an arm of the liberal Brookings Institution and the Urban Institute), who offers that, “In a rational system, a corporation’s tax department would be there to make sure a company complied with the law. But in our system, there are corporations that view their tax departments as a profit center, and the effects on public policy can be negative.”
That’s one way of putting it. Another is to acknowledge that taxes are just another cost to a corporation. And a responsible company will seek to minimize costs and maximize profits. That’s how companies are able to provide jobs. The corporate rate in the United States is 35 percent, among the highest in the industrialized world. Even “spread the wealth around” President Barack Obama has recommended reducing it so that some of those dollars (and jobs) currently hiding out abroad can be repatriated. Besides, corporations collect taxes; they don’t pay them.
Alternatively, in a rational system, the tax code would not be such a playground for the well connected and well heeled. It would not stretch to 71,684 pages requiring high-priced lawyers and accountants to interpret. It would not penalize the honest and reward the scofflaw, as our current system does, imposing a $2,000 yearly fee on every taxpayer to cover the loss in revenue from those who illegally evade taxes. It would not chew up 6.1 billion hours a year in compliance time. It might look more like the FairTax.
The problem is not that companies like GE take advantage of the system. The problem is the bloated, burdensome, Byzantine system itself.