The name of the game in all too many corporate tax departments is to minimize the tax due as much as possible. No countervailing notion of “corporate citizenship” or even “fair share” exists in that economic world of single-minded minimization of what is to be paid out. Put another way, responsibility does not compute in the business calculus. Advocates of corporate social responsibility got this wrong for decades by naively assuming that people who work in management roles cannot compartmentalize. Whether due to the strictures of a job description or financial pressures on a company, managers themselves may regret having to compartmentalize in order to keep their respective jobs. Sadly, all too often, a manager faces internal and external pressure to sign off on something that is admittedly unfair or too greedy. That the playing field itself may be slanted in the financial interests of large businesses goes beyond a manager's pay-grade, and even that of a corporation itself. For one to speak out in order to make the tilt explicit in society would deny the operative role of compartmentalization. Managers, even CEO's, may personally want a level playing field wherein corporations cannot yield an undue amount of wealth at the expense of other entities or persons, such a desire is outside of the business calculus.
One manifestation of the tilted field is the ability of companies to bring IRS agents in-house as employees. In the debate on whether to end the George W. Bush Tax Cuts, the nominal (or statue) tax rates were salient. Much less was said of the effective rates, which are calculated by dividing the actual tax paid by total income (individuals) or net income (corporations). The New York Times reported in 2011: Although “the top corporate tax rate in the United States is 35 percent, one of the highest in the world, companies have been increasingly using a maze of shelters, tax credits and subsidies to pay far less.”[1] Although perfectly legal, the undue advantage means that the U.S. Government has had to look for other sources of revenue to make up for the lost revenue or do without the revenue, using debt to compensate. The "perfectly legal" aspect points back to the tax laws, and, more particularly, at the undue or even improper influence of the business sector in Congress. In fact, lest it be concluded that the business calculus is the reason for the tax avoidance (which is legal, unlike tax evasion), the financial power of business tilts the field not only by having too much influence in the crafting of tax legislation, but also in being able to hire ex-IRS employees to get "the inside scoop" on avoidance tactics. I now turn to the case of General Electric (GE) in 2010.
General Electric reported global profits that year of $14.2 billion, $5.1 billion of which came from operations in the United States. Rather than owing any federal income tax on the $5.1 billion, however, the company claimed a tax benefit of $3.2 billion. Behind the “fierce lobbying for tax breaks and innovative accounting that enable[d] [the company] to concentrate its profits offshore,” the company’s tax department was led at the time by a former U.S. Treasury official, John Samuels.[2] Moreover, the department included “formal officials not just from the Treasury, but also from the I.R.S. and virtually all the tax-writing committees in Congress.”[3] G.E. had essentially brought the tax-writing and enforcement skill of the U.S. Government “in house.” As paid employees of G.E., the former government expertise was put under the aims of the private company, an organizational machine solely oriented to maximizing profit, whether short term or long.
Generally speaking, companies of such enormous financial wherewithal that annual profits are in billions of dollars can appropriate and harness governmental machinery for the sake of private gain. The issue here is not simply the existence of too much tax avoidance, hence at the expense of fairness; rather, the underlying problem is whether the existence of such large and powerful private enterprises is compatible with a democratic form of government. It is certainly not in the interest of the business sector that this question be interjected into public discourse. So the vested powerful interests, working through political stand-ins and the media, which itself is largely corporate, preoccupied with secondary issues, such as nominal individual tax rates, off-shore factories, and NAFTA. NBC, for instance, was owned by G.E. before being bought by Comcast.
To be sure, the mantra well-known to many Americans in the 1950s, What is good for GM (or GE) is good for America, was supported by the notion that economic prosperity benefits everyone and a profitable company hires more employees than does an unprofitable company. What if the societal absorption of the value of this ideology made it possible for the business sector to have so much influence in Congress that the corporate taxpayers have practically been able to write their own tax laws? What if a pro-business society is too vulnerable to the rule by wealth (i.e., a plutocracy) that this underbelly can even keep itself hidden from view? Flaws exist in the assumption that what is good for GM or GE is good for America. Abstractly speaking, the good of a part is not necessarily the good of the whole. Private gain is more limited than is public gain. So if some of the parts come to dominate the whole and even define it in their own terms or image, the other parts and even the whole can be taken advantage of on the tilted board.
1. David Kocieniewski, “G.E.’s Strategies Let It Avoid Taxes Altogether,” The New York Times, March 24, 2011.
2. Bonnie Kavoussi, “General Electric Avoids Taxes By Keeping $108 Billion Overseas,” The Huffington Post, March 11, 2013.
3. David Kocieniewski, “G.E.’s Strategies Let It Avoid Taxes Altogether.”
2. Bonnie Kavoussi, “General Electric Avoids Taxes By Keeping $108 Billion Overseas,” The Huffington Post, March 11, 2013.
3. David Kocieniewski, “G.E.’s Strategies Let It Avoid Taxes Altogether.”
