Tuesday, July 13, 2004

GE Lobbyists Mold Tax Bill

No company in the nation had more to lose than General Electric Co. when the World Trade Organization decreed in 2002 that U.S. tax laws violated international treaties. The multinational conglomerate was saving hundreds of millions of dollars a year in taxes from the export subsidies that the United States had to discard.
But in a two-year campaign, fueled as much by brains as political brawn, GE has shaped the legislation that would replace the old export-promotion law in ways that would allow it to save as much, if not more, in taxes, according to both GE lobbyists and congressional aides. In pursuing its financial interest, the company may also have turned the U.S. corporate tax code away from domestic manufacturing and toward expansion of operations abroad.
"The bill is truly amazing," said Michael J. McIntyre, a tax law professor at Wayne State University and an expert on international corporate tax issues. "We had an incentive for exports that was illegal and had to be repealed. Now Congress takes the money saved by the repeal and uses it to reduce taxes on the income earned by U.S. companies in foreign countries, thereby making foreign investment more attractive than U.S. investment."...

A top target: the provision enacted in 1986 that created nine separate categories -- or baskets -- of overseas business activities. Companies earn credits for taxes they pay to foreign governments and can use them to offset U.S. taxes on overseas profits. But credits earned from one activity could not be used to reduce taxes owed from another business venture, nor could taxes paid in high-tax countries be used to reduce taxable income earned in tax havens abroad.
"The whole point of the baskets is to prevent that abuse," said McIntyre, the Wayne State professor.
GE pressed to reduce those nine categories of business activities to two, in the name of simplification. One of the baskets that would be eliminated is for financial services. That way, foreign tax credits from GE's many manufacturing activities could be used to reduce taxes owed on the profits from its lucrative financial services division, GE Capital....

GE was more successful in the House Ways and Means Committee. Chairman Bill Thomas (R-Calif.) backed the basket-streamlining provision, reasoning that the nine categories were created by a Democratic predecessor, Dan Rostenkowski (Ill.) solely to raise money for government. When the House bill passed last month, not only had the company won its foreign baskets provision, but it also secured a rich tax break on its aircraft leasing business. GE allies also slipped in a four-year suspension of customs duties on foreign-made steam generators and nuclear reactor vessel heads....

Between 1994 and 2001, the company's effective tax rate was above 30 percent in every year but one, according to Standard & Poor's. Last year, the firm's tax payments slid to 21.4 percent of profit even though the top corporate tax rate remained at 35 percent. If the new legislation is signed into law, GE's tax payments are likely to fall further, said Robert S. McIntyre of the liberal Citizens for Tax Justice.
"This is the definition of corporate welfare," McIntyre said. "To these guys, old tax breaks have become entitlements, even illegal ones."

An excellent article on how General Electric was able to manipulate the legislative process to get everything they wanted, and then some.

Added: I wonder if some of that might happen to be the same tax bill I mentioned last October? Wish I could remember more of that, or had quoted more, or had a NYT pass or whatever they use.

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