Twelve days ago, on March 13, 2011, my infant son was born. At approximately five-and-a-half weeks premature, he spent exactly one week in a Level Two Neo-Natal Intensive Care Unit, much of that time laying and staying warm in a brand new incubator-type machine manufactured and sold by General Electric.
Summerville Medical Center here outside of Charleston, South Carolina had two of the machines. The nurses, who were all excellent, at one point explained that the machines had only been in place for a few months, and cost roughly $40,000 apiece. A quick look around the room allowed for the discovery that, indeed, most of the hardware making the beeps, bleeps and boops sported that well-known GE logo. At one point, I found myself shaking my head while thinking about the cozy relationship between GE CEO Jeffrey Immelt and President Barack Obama; a minute or two later, having studied my child’s still-cloudy blue eyes as he looked up at me, I found myself saying a silent “thank you” to Immelt for presiding over the corporation which manufactured and sold the machines and various accoutrements necessary to sustain my tiny son’s life.
My debt to GE in that regard is not the only reason I thought today’s piece in The New York Times, “G.E.’s Strategies Let It Avoid Taxes Altogether,” was a bit lopsided and unfair. While the article was clearly aimed at assuaging and incensing the Old Gray Lady’s left-leaning [and dwindling] readership, I felt as though the potential reach in a populist sense demanded that I put the subject matter in a little perspective. One look at how the piece begins, and it’s easy to see how it will be received by average folks across the country whose daily exposure to news and political opinion is limited to the late local news:
General Electric, the nation’s largest corporation, had a very good year in 2010.
Well, darn. I wish I had a good year in 2010. I lost my job and benefits, I’m underwater on my home loan…
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.
Well, that’s a lot of money. It certainly explains why Aunt Bertha’s ER trip cost so much…
Its American tax bill? None. In fact, G.E. claimed a tax benefit of $3.2 billion.
Say what, now? They made all that money and didn’t pay any taxes? Shoot, I made $37,000 this year before I was laid off and still had to pay my share to Uncle Sam — why don’t those fancy-pants corporate Wall Street greedy Gordon Gekko types have to pay their share?
What most Americans who find themselves too busy or otherwise engaged to pay attention to matters of business and politics may not understand is that any taxes paid by a corporation will simply be passed along to the consumer in the long run. If a local supermarket pays $2.50 for a gallon of organic milk that it in turn sells to shoppers for $5.00, any increase in what that supermarket must pay for the milk, whether it be in the form of additional tax burden or unionized cows, will only increase the amount that moms and dads pay at the checkout counter. General Electric is the same way — if it weren’t for G.E.’s “giant tax department” and its work in finding tax loopholes, G.E. would be paying the corporate tax rate of 35 percent (which even the Times notes is one of the highest such rates in the world). That additional cost would be figured into the cost of manufacturing, distributing and selling machines like those which sustained my son’s life, and hospitals like Summerville Medical Center would be forced to pay more. Subsequently, that additional cost incurred by Summerville Medical Center would be passed along to my wife and I in the form of out-of-pocket expenses, and to the rest of you in the form of increased insurance premiums.
Those tax loopholes and shelters and strategies always deemed so evil by the American left and the populist center are, perhaps, the only possible mechanism by which the United States of America can compete when it comes to attracting and keeping corporations like General Electric within our borders. Already, of the 304,000 employees noted by General Electric at this time last year in its Notice of 2010 Annual Meeting and Proxy Statement, only about 133,000 of those employees are employed domestically. That’s less than half. And while those 133,000 employees are adding to the tax base in their individual states and municipalities in which they are domiciled, buying groceries and eating at restaurants and paying property taxes and more, if the United States of America would take the steps necessary to ensure that maintaining operations stateside is advantageous rather than merely a barely tolerable cost of doing business, perhaps more of those 304,000 employees would be contributing to the tax base. And that’s just one corporation.
Look, I am not going to pretend to be some sort of business genius. In fact, I am anything but. However, it does not take some sort of savant to understand that business will go where the cost of doing business is lowest and where the infrastructure is adequately suited for growth. Right now, in the States, the infrastructure is there enough to offset a higher cost of doing business, but there is no reason why we cannot couple infrastructure with an irresistible business environment.
Instead of allowing our bureaucrats to constantly look for more ways to exert control over private business, we need to ensure that the federal government and its various economic tendrils are kept within its constitutional authority. To do so, perhaps we start by doing more of this:
And, instead of vilifying corporations like General Electric for doing what it can to operate within the Tax Code while trying to minimalize the effect of this nation’s counterproductive tax system, instead of acting to shut down and restrict access to tax shelters and use of such tax strategies, the United States of America should instead adopt a business-friendly system which operates as the location where the rest of the world’s business and industry send their operations to avoid excessive burdens at home. Just as it is with energy policy, how for long-term success we need to stop being an oil junkie and start being the dealer, when it comes to business and industry we need to quit sending our jobs and money overseas, and start putting ourselves in a position where others send their jobs and money to us. Stop being the ones that need the shelter, and start being the ones that have the shelter.
The role of the federal government should be to bolster the private sector and provide an environment in which the private sector can grow. Currently, however, all too often the federal government acts in an adversarial manner, putting up regulatory and legislative roadblocks to growth, and generally for no reason other than to serve a contrary special interest. In terms of corporate taxation, the best possible way for the government to finally assume its proper part would be to scrap our current tax system and move toward a consumption-based tax, but that’s another story altogether.
So, while it may be tempting to jump on the populist bandwagon and scream and shout at the news about General Electric and its tax bill, consider that General Electric’s capacity for working within our horrendous tax system and keeping the cost of doing business down is actually serving you and me by keeping the cost of purchasing General Electric products down as well. And, with General Electric maintaining a heavy hand in appliances, aviation, consumer electronics, electrical distribution, energy, entertainment, finance, gas, healthcare, lighting, locomotives, oil, software, water, weapons, wind turbines and more, their lesser tax burden is your greater gain.
Of course, G.E.’s excessive lobbying and Jeffrey Immelt’s role in the Obama administration–the Times correctly points out that Immelt is the president’s liaison to the business community and is chairman of the President’s Council on Jobs and Competitiveness–means that he and his company are benefiting from tax breaks that he has had a hand in making happen. That much is a problem. But the bigger picture demands that our federal government do more to foster economic growth so that G.E.’s “giant tax department” and its counterparts in businesses everywhere are rendered obsolete when it comes to dealings on American soil. No corporation should have to scramble and bend the rules in order to get around our system. That G.E. was forced to do so should not be met with indignation toward G.E., but rather toward the very system which made such conduct necessary.