You’ve heard the story. General Electric (GE) didn’t pay any taxes in 2010. In order to get out of paying taxes legally, it filed a 57,000-page tax return. This shows how absolutely outrageous our tax code is and why so many are for scrapping the whole thing and going to a flat tax or a consumption tax. There should be outrage for the 47 percent of Americans who did not pay a penny in federal taxes in 2010.
There are a number of things that are important in all of this. First, a good portion of the $14.2 billion in profits went to shareholders who did pay taxes on the profits they received. These profits fuel the retirement programs of millions of investors so that they do not end up becoming dependant on the government.
Second, any profit kept by the company goes to future development costs and serves as a cushion in case of an economic downturn. Profits are necessary to stay in business.
Third, GE is an international company. The corporate tax rate in the United States is as high as 35 percent. The corporate tax rate in many other countries is less. GE is being smart. America’s high corporate tax rates force companies off shore. If the corporate tax rate were lower in the United States, more companies would decide to stay. Unions don’t help.
Fourth, GE takes advantage of so-called tax loopholes. They’re not loopholes; they’re legal ways to avoid taxes. We all take advantage of these legal ways to lessen our nation’s oppressive and complicated tax code. If we don’t like GE to take advantage of them, then neither should we take advantage of them.
Fifth, every penny kept away from the Federal Government is a good thing. What do we think is better? To let Congress decide how to spend GE’s profits as it funnels them though the bureaucracy giving more power to the government or for the stockholders to decide how to spend their dividend money?
Sixth, why should any company have to pay billions of dollars in taxes?
Seventh, GE employs 287,000 people. As you know, or you may not know, whatever you and I pay in Social Security (FICA) taxes, our employer matches. If you earn $50,000 per year, then you pay around $3100 in Social Security and a bit more for Medicare. The self-employed person knows all about this since he pays both sides of the tax. If we live to retirement age, we’ll begin to get this money back. The longer we live, the more we get back.
The Social Security program is called the Federal Insurance Contributions Act (FICA). We’re not really “contributing” to the program since we are forced to pay into the system. All employers, and this includes GE, must pay an equal matching amount of money. So if an employee pays $3100, GE must pay the same — another $3100. It’s a tax on GE as it is on every company. GE does not get this money back when the employee retires. The employee gets it all if he or she lives long enough.
If the average salary at GE is around $75,000 (see here), and the FICA tax rate is 6.14 percent, and there are 287,000 employees, then GE paid $1.231 billion in Social Security taxes in 2010.
GE also pays for healthcare and offers a generous profit sharing plan among many other benefits. You can read all about how generous GE is with its profits for its employees here.
Eighth, what happens to the money GE pays to its 287,000 employees? The money that people make at GE goes back into the economy that ends up helping all of us. The buy houses, shop for groceries, purchase cars, clothes, TVs, computers, and so much more. GE stimulates the economy in ways the governments can’t.