Last week, the New York Times published a rather indignant article on how GE paid no US taxes in 2010 despite earning $5.1 billion in US income; "In fact," says the New York Times, "GE claimed a tax benefit of $3.2 billion". I found the article rather messy and underwhelming--what does it mean that they "claimed a tax benefit"?--and its main point seems to be the rather extraordinary position that GE has a moral obligation to maximize the taxes it pays. The author seems to think it's outrageous--outrageous!--that GE has a lot of people in its tax department who spend a lot of time trying to minimize the company's taxes. Many paragraphs are devoted to this, to no obvious point, including a ludicrous quote from Len Burman:
"In a rational system, a corporation's tax department would be there to make sure a company complied with the law," said Len Burman, a former Treasury official who now is a scholar at the nonpartisan Tax Policy Center. "But in our system, there are corporations that view their tax departments as a profit center, and the effects on public policy can be negative."
GE was, in fact, "spinning" when it said it "paid significant federal income tax in 2010." AND the New York Times was flat-out wrong.
GE was spinning because the taxes paid were just payments on a tax bill that has yet to be calculated--similar to the withholdings that individuals have taken out of their paychecks that are often followed by an end-of year refund. And the New York Times was wrong because, even leaving aside the income tax issue, there is simply no way that GE's US tax bill in 2010 can be fairly described as being "none." GE paid many different kinds of US taxes in 2010--state, local, payroll, etc.--and, according to Eisele, its 2010 income tax bill (which still has yet to be determined) is likely to be positive.
So is it fair to say that GE does everything in its power to pay as little taxes as possible and does a very good job of paying a shockingly small amount relative to its huge profits? Yes. But it is not fair to say that GE's 2010 US tax bill was "none."Whatever criticisms have been leveled at Mr. Blodget's work as an equity analyst, I'm quite positive that he knows how to read a financial statement. And having gone through his exchange, I don't see any way around it: the lede of the New York Times story simply cannot be reconciled with what GE is saying. Either GE is lying, or the New York Times is going to have to publish a correction.
UPDATE 2: Wow, just when we thought it was over... The NYT may be off the hook, at least on the "federal income tax" assertion. No sooner had we published our conclusion that the NYT's statement was "flat-out wrong" than the NYT came right back and said there wasn't a single factual inaccuracy in its article, which was why GE hadn't asked for a correction. And, more importantly, the NYT sent us an AFP article in which GE spokesperson Anne Eisele--the same spokesperson who wrote the comment below--said the following: "GE did not pay US federal taxes last year because we did not owe any."Developing . . .
Now, that's very different from what Anne told us (see comment below, in which Anne says GE paid US federal taxes and owes them). And it supports the New York Times's position that GE's tax bill was "none." And it suggests that GE is still trying to find a way, any way, to talk its way out of this, even if that means giving out false information. (And it also undermines GE's legitimate gripe that "American tax bill"--the NYT's phrasing--should include things like local, state, and payroll taxes).
We have asked Anne and GE, once again, to explain themselves. They're working on getting us a response...