- #36
talk2glenn
jambaugh said:
Your argument would be meaningful is this were a debate on the corporate income tax, itself. But this is not.
GE didn't not pay income taxes because the government makes not double taxing earned income a policy priority. The United States has a corporate income tax, on top of its individual income taxes, and the rate is extremely high. Most businesses in America pay these taxes. So, then, why didn't GE? Not because of any business practice of social value, but because it invests considerable investor capital in tax avoidance and tax optimization, and because it has greater access to Washington than perhaps any other corporation in the country, if we measure access by lobbying budget.
http://www.boston.com/news/nation/washington/articles/2006/07/07/lobbying_funds_spiral_to_24b/
That's $21.5M that GE didn't spent designing better lightbulbs, and does not account for the costs GE spent developing worse but government supported lightbulbs (as measured by the markets willingness to pay). This returns profits to GE, granted, but not in the traditional manner (mutually beneficial voluntary exchanges that generate social surplus), but in a public manner - mandated wealth transfers that create deadweight loss (the public values the subsidized product at the quantity supplied less than the price charged by GE, by definition). GE's gain is the nations loss. A quick lesson: consider the "free" electric carts you may or may not have seen advertised after the stimulus legislation was enacted (GE may or may not have been involved here; I'm using it as an example) - the market demand for these carts at the advertised price of "free" is certainly much higher than the demand at the truth price of $7,000 (before public subsidy). The excess demand - people who buy the carts for zero dollars but won't buy the carts for $7,000 - are deadweight loss buyers. The taxpayer is paying more for the carts than the value returned to the purchaser (by his own estimation), and the taxpayer loses the difference (ie, if the subsidized buyer was willing to buy the cart for $1,000, the social deadweight loss was $6,000). This is simplistic; subsidy advocates would argue that there were external benefits to the electric cart not captured by the parties to the sale. Even if true, though, I doubt very much that in any case those benefits could add up to 100% of the transaction cost, and there's almost always an absence of any hard data supporting the claim; nonetheless this is how GE and others operate in a government-dominated market, like energy, finance and healthcare.
On top of it all, the fact that other companies with less clout must both pay business taxes and sell their products without generous public subsidy means that GE has an unfair, anticompetitive business advantage. A company may have an inferior product or a more efficient production technique, but because it faces higher operating costs (tax and regulatory cost) it must charge a higher price. Frankly its a tragedy, and hopefully the attention from the NYT article will lead to meaningful reform (a slashing of the corporate tax rates and the elimination of the vast majority of deductions and credits from the code, especially the targeted deductions for particular firms).
The fault in this isn't even GE's; its just moving investor capital to where it anticipates the greatest return. The failure is governments for creating an environment in which GE can reap greater profits by paying off congressmen than by making and selling useful stuff.
Last edited by a moderator:
