More Corporations to Pay Less Tax Under Obama’s “Jobs” Plan

In General Electric, Income Tax Rates, Job Creation, Obama Administration on September 9, 2011 at 1:43 am

General Electric logo.svg

They say politics makes for strange bedfellows and President Obama’s proposed $447 Billion “Jobs” bill is a strange partner to the oft stated Democratic goal demanding corporations “pay their fair share”.

President Obama’s plan cuts by half the payroll tax paid by employers and sets an employer payroll tax holiday for new workers or higher wages.  The President offers “tax credits of up to $5,600 for businesses that hire unemployed veterans, $4,000 for hiring workers unemployed for more than six months, and up to $9,600 for companies that hire unemployed workers with service-connected disabilities who have been looking for work for more than six months.” [1]

Setting aside the issue of whether these credits will really work or not, it surprises Econscius the same people who decry the low effective US tax rates paid by GE and other large companies are supporting a plan that will… offer new tax credits to GE and other large companies for doing things they already do. 

Why did GE pay no US income tax in 2010?  There are many reasons, including a loss carry-forward from its loss in 2009, artful distribution of income among international jurisdictions as well as numerous US tax credits.  GE enjoys “green energy” credits for its wind turbines [2], receives export subsidies [2], credits for its front-loading washing machines [3] and other tax code goodies.  The “green” washing machine subsidies are significant as its competitor Whirlpool also managed to pay no income tax in 2010, on a profit of $619 million. [3]

These tax credits exist as a matter of public policy.  America’s elected representatives offer up tax credits to encourage companies to export, sell “green” products and so forth.  President Obama’s plan would sweeten the rewards for hiring new workers.  While that is a noble goal, it is certain much of the tax credit benefit will reward companies for hiring the employees they already intend to hire.  A temporary tax credit is of even less likely long-term benefit since it is a reward to hire an employee but only until the tax credit ends.  I think a small number of employees will be added at the margin, but the numbers will be small since a temporary credit is not, in and of itself, a reason to hire if a company believes the economy is too weak to justify the overall expense of a new worker. 

Be that as it may, the tax credits will actually reduce the taxes paid by American corporations, which we have been led to believe is exactly the opposite of what the Left wants.  It does not take too much imagination to think the tax sharpies at companies like GE may even find ways to game whatever new tax benefits are ultimately passed, perhaps firing employees in one area and then rehiring others to take the tax credit in another area.  

I like the idea of a simpler corporate tax code with lower rates but fewer credits and loopholes.   The more complicated the tax code is, the more perplexing it is to average businesses and the more advantage it conveys to large corporations like GE, who employs 975 clever people in its tax department. [3] 


[2] Also, source of Immelt/Obama picture.


GE pictures from Wikipedia Commons.


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