Jeff Immelt, the boss at General Electric (GE) and the President’s Best Executive Friend Ever (“BEFE”) had this to say about reforming corporate taxes:
Our system is old, it’s outdated, it’s complicated — and all of us are for closing the loopholes. Absolutely, a lower corporate tax rate, and a territorial system, just like our global competitors have.
I love it when ‘Jeff Boy’ says “all of us”. Who is he referring to with that? American citizens in general? Not the case. Employees of big companies like GE? No, not them either. The “Us” that Jeff is referring to is America’s CEO’s and top exec’s. That lucky group comes to about 0.01% of the population.
Unfortunately, guys like Immelt have the President’s ear. That Jeff Boy is actually a formal adviser to the president while at the same time he is pushing a tax plan to benefit himself and another 30,000 execs is over the top. From GE’s top bean counter, Gary Sheffer:
GE favors closing loopholes, a lower corporate tax rate, and a territorial system in line with every other developed country in the world.
So GE and the rest of the execs are willing to give up loopholes, but in exchange they want a lower marginal rate and they want a territorial system.
This territorial system that is being pushed means that companies like GE will not be taxed at all on any of their foreign income. These companies will be tax motivated to build new productive facilities in the lowest tax haven. A territorial system will just push productive assets (and jobs) offshore until the US tax rate falls to a level that is equal to (or less than) another country. As a result of this proposal, the big US companies will hold the country hostage. Either they get the lowest marginal tax rate, or they just ship off some more jobs abroad.
Truly global companies like GE will be able to drive a truck through these new rules. They will push profits offshore so they will not be subject to even the new lower US rates.
This chart from the CBO shows the tax contributions of US corporations. Does it surprise you that all of our successful companies combined pay about 1/8th the amount that individuals do? If the proposals put forward by Immelt are adopted, the amount that those companies will contribute will fall further.
Lower taxes is exactly what the “Us” crowd wants. That’s understandable, they are Us’s. But for the life of me I can’t understand why Obama has joined with the Us’s. If voters actually figure out who is calling the shots on tax and economic policy they will turn on the Big O. Having Jeff Boy as the President’s BEFE is the worst conflict of interest I can think of.
As an individual (and US citizen) you are subject to taxation on a global basis. If you invest in Australia and make a buck, you owe taxes to Uncle Sam. If you went over the border to Canada to work for a year, you would owe taxes in the US.
Assume that individuals had a territorial system on tax as the Execs are pushing for. What might you do? You might be inclined to work outside of the US and you certainly would have a motivation to put your money to work some other place.
These tax motivations would be very much to the disadvantage of the US. The economy would suffer and tax receipts would fall. Of course there is no discussion for individuals to be taxed on a territorial system. That carve-out is only for the big shots in the S&P 500.
If it’s not reasonable or fair for individuals to be taxed on a territorial basis how could it possibly be fair for the S&P 500? Answer: it can’t be.