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Vocabulary > Economy > Taxes

Rob Rogers

The Pittsburgh Post-Gazette

Pennsylvania

Cagle

24 June 2011

John A. Boehner, an Ohio Republican,

became Speaker of the House of Representatives in January 2011.

Monte Wolverton

The Wolvertoon

Cagle

22 November 2010

R.J. Matson

The St. Louis Post-Dispatch and Roll Call

Cagle

7 December 2010

Dave Granlund

Massachusetts

Cagle

7 December 2010

Rob Rogers

The Pittsburgh Post-Gazette

Pennsylvania

Cagle

7 December 2010

J.D. Crowe

The Mobile Register

Alabama

Cagle

13 April 2010

Adam Zyglis

The Buffalo News

Buffalo, NY

Cagle

27 November 2008

tax and spending
http://www.guardian.co.uk/politics/taxandspending

tax USA
http://www.nytimes.com/business/yourtaxes/?WT.mc_
id=BU-D-I-NYT-MOD-MOD-M036-ROS-0308-PH&WT.mc_ev=click&mkt=BU-D-I-NYT-MOD-MOD-M036-ROS-0308-PH

federal taxes USA
http://topics.nytimes.com/topics/reference/timestopics/subjects/f/federal_taxes_us/index.html

tax USA
http://www.nytimes.com/2011/11/28/opinion/krugman-things-to-tax.html

Taxing the Rich, New York Style USA December 2011
http://www.nytimes.com/roomfordebate/2011/12/08/cuomos-tax-deal-who-benefits-the-most/

Do taxes narrow the wealth gap? USA September 2011
http://www.nytimes.com/roomfordebate/2011/09/19/do-taxes-narrow-the-wealth-gap

cartoons > Cagle > Tired of taxes USA 2011
http://www.cagle.com/news/Taxes2011/main.asp

taxman
http://www.reuters.com/article/2011/04/06/us-usa-budget-taxes-idUSTRE7347CX20110406
http://www.independent.co.uk/news/uk/politics/revealed-taxman-is-16322bn-out-of-pocket-1754390.html

tax receipts
http://www.independent.co.uk/news/uk/politics/revealed-taxman-is-16322bn-out-of-pocket-1754390.html

tax laws

income tax
http://business.guardian.co.uk/budget2007/story/0,,2039849,00.html
http://business.guardian.co.uk/budget2007/story/0,,2039718,00.html

tax cut
http://business.guardian.co.uk/budget2007/story/0,,2039269,00.html

tax return USA
http://www.nytimes.com/2008/04/19/us/politics/19taxes.html

tax cut USA
http://www.nytimes.com/2010/12/08/opinion/08wed1.html
http://www.nytimes.com/2008/01/23/opinion/23burman.html

cartoons > Cagle > Tax cuts December 2010
http://www.cagle.com/news/TaxCuts10/main.asp

tax break USA
http://www.nytimes.com/2010/05/29/business/29carried.html
http://www.nytimes.com/2005/05/08/business/08taxes.html

tax giveaway

corporate taxes USA
http://www.nytimes.com/2012/02/23/opinion/reform-and-corporate-taxes.html

The Trouble With Corporate Taxes USA February 2011
http://www.nytimes.com/roomfordebate/2011/02/01/the-trouble-with-corporate-taxes
http://www.nytimes.com/2012/02/23/business/economy/obama-introduces-plan-to-cut-corporate-tax-rate.html

Apple > How Apple Sidesteps Billions in Taxes USA 2012
http://www.nytimes.com/2012/04/29/business/apples-tax-strategy-aims-at-low-tax-states-and-nations.html

council tax

stealth tax

tax return

tax shelter USA
http://www.nytimes.com/2009/06/10/business/10tax.html

tax hikes USA
http://www.reuters.com/article/2011/05/09/us-taxes-us-idUSTRE7485N020110509

Internal Revenue Service IRS USA
http://topics.nytimes.com/top/reference/timestopics/organizations/i/internal_revenue_service/index.html

http://www.nytimes.com/aponline/2010/02/20/us/politics/AP-US-Plane-Crash-Tax-Protesters.html

cartoons > Cagle > Irritating IRS USA 2011
http://www.cagle.com/news/IRS2011/main.asp

Randy Bish

The Tribune-Review

Pittsburgh, PA

Cagle

9 February 2009

M : U.S. president Barack Obama

Joe Heller

Wisconsin

The Green Bay Press-Gazette

Cagle

31 March 2011

taxpayer
http://www.reuters.com/article/2011/04/06/us-usa-budget-taxes-idUSTRE7347CX20110406
http://www.guardian.co.uk/business/2009/jan/25/credit-crunch-recession
http://www.guardian.co.uk/business/2008/oct/12/banking-economy

at taxpayers' expense

1040
http://blogs.reuters.com/prism-money/2011/04/06/10-mistakes-to-avoid-at-tax-time/

tax > cartoons > Cagle > Terrible 1040 USA 2011
http://www.cagle.com/news/Terrible1040/main.asp

tax burden
http://blogs.reuters.com/prism-money/2011/05/11/do-higher-taxes-encourage-tax-avoidance/

tax dodger

get tough on tax dodgers

tax cheat

tax audit
http://blogs.reuters.com/prism-money/2011/04/05/5-ways-to-avoid-a-tax-audit/

tax inspector
http://www.guardian.co.uk/money/2009/oct/10/tax-inspector

tax delinquents USA
http://www.usatoday.com/news/washington/2008-04-13-Taxside_N.htm

tax avoidance USA

— the legal means of minimizing one’s tax burden,
not to be confused with its illegal cousin, tax evasion —
http://blogs.reuters.com/prism-money/2011/05/11/do-higher-taxes-encourage-tax-avoidance/

tax avoidance
http://www.guardian.co.uk/business/taxavoidance

avoid taxes
http://www.nytimes.com/2011/03/25/business/economy/25tax.html

close tax loopholes

tax-free
http://money.guardian.co.uk/budget2007/story/0,,2039266,00.html

VAT
http://www.guardian.co.uk/business/2011/feb/15/inflation-hit-four-per-cent-in-january
http://www.guardian.co.uk/politics/2011/jan/04/george-osborne-vat-rise-least-damaging
http://www.independent.co.uk/news/uk/politics/vat-up-to-20-as-osborne-piles-on-the-pain-2007269.html

cut / slash VAT
http://www.independent.co.uk/news/uk/politics/brown-and-darling-slash-vat-in-16318bn-tax-gamble-1031213.html
http://business.timesonline.co.uk/tol/business/economics/pbr/article5213582.ece
http://www.guardian.co.uk/politics/2008/nov/23/economy-taxandspending

VAT fraud
http://politics.guardian.co.uk/economics/story/0,,1844162,00.html

VAT villains
http://politics.guardian.co.uk/economics/story/0,,1844162,00.html

VAT fraudsters
http://business.guardian.co.uk/story/0,,1817486,00.html

HM Revenue & Customs
http://money.guardian.co.uk/tax/story/0,,1931619,00.html

tax evasion USA
http://topics.nytimes.com/top/reference/timestopics/subjects/t/tax_evasion/index.html

Serious Fraud Office SFO
http://www.guardian.co.uk/baefiles/story/0,,2098723,00.html

wrongdoing

tax evader USA
http://www.nytimes.com/2009/10/13/business/13irs.html

offshore

offshore havens
http://observer.guardian.co.uk/business/story/0,6903,1446120,00.html

offshore tax haven
http://www.nytimes.com/2009/05/05/business/05tax.html
http://www.guardian.co.uk/business/2008/jul/19/hmvgroupbusiness.retail

tax haven
http://www.guardian.co.uk/business/2011/oct/11/ftse-100-subsidiaries-tax-havens
http://www.guardian.co.uk/business/2010/mar/24/budget-2010-tax-havens-belize
http://www.guardian.co.uk/business/2009/feb/09/tax-gap-boots-chemists

corporate tax breaks
http://www.nytimes.com/2009/05/05/business/05tax.html

Mikhaela Reid

Cagle

5 February 2009

How to Get Business to Pay Its Share

May 3, 2012
The New York Times
By ALEX MARSHALL

JAMES MADISON never played with an iPhone, but he might have had something to say about the news last weekend about Apple. Over the last few years, the company has avoided paying billions of dollars in state and federal taxes by routing profits through subsidiaries based in tax havens from Reno, Nev., to the Caribbean.

This is a common practice among major American businesses, and back in 1787, Madison saw it coming. Someday, he warned, companies could grow so large they “would pass beyond the authority of a single state, and would do business in other states.” To make sure the companies remained accountable to government, he said the federal government should “grant charters of incorporation in cases where the public good may require them, and the authority of a single state may be incompetent.”

In other words, a National Companies Act.

Such an act would create a common corporate architecture for all American companies doing business across state lines and internationally. It would establish not only uniform tax policies but also national standards for the structure of corporate boards, the power of chief executives, the relations of management with workers and shareholders and the interaction of American companies with other nations. National companies would have to abide by national rules, and the option of shopping around for the most favorable laws or tax policies simply wouldn’t exist.

It’s an idea that has been proposed and pursued many times, particularly during the early 1900s, when companies like Standard Oil, which was a collection of companies incorporated in various states and assembled into a national “trust,” were becoming increasingly powerful. Theodore Roosevelt, William Howard Taft, Woodrow Wilson and, later, Franklin D. Roosevelt all supported the creation of a national companies law, but the measures were consistently opposed by the business community and eventually defeated.

Today, however, considering how much effort and money American companies expend on keeping a competitive advantage by figuring out which loopholes to exploit from the bewildering array of rules now in effect, they might not entirely oppose reform. In an era of global competition, it could help to have a clear set of standards. It’s certainly what other nations have. In Germany, for example, national legislation established rules for the structure of corporate boards. Britain’s Parliament establishes how a corporation can be created and what its rights and responsibilities are.

Legally, there is little doubt that the United States Congress could impose similar rules under the Commerce Clause of the Constitution. Although the states have traditionally been the main arena for corporate rules, the federal government has long created national corporations, from the First Bank of the United States in 1791 to the Corporation for Public Broadcasting in 1967. Congress could use this same power to require that companies doing business across state lines have national corporate charters, which would subject them to federal rules. Alternatively, it could simply set rules for corporate organization and conduct that would apply to all interstate companies of a certain size.

Passing a National Companies Act won’t be easy. Companies would hire lobbyists to push for favorable rules. And some states with particularly easy incorporation terms, like Delaware, might resist. Around 60 percent of Fortune 500 companies are incorporated in Delaware, and the state earns a great deal in fees and tax revenues as a result.

But the Apple controversy shows that the nation is ready for reform. While the company is a symbol of private enterprise, its existence is made possible by a charter that some government writes and grants. It should serve public as well as private ends — and pay its rightful share in taxes — or it should not exist at all.

Alex Marshall is a senior fellow at the Regional Plan Association,

an urban research and advocacy group,

and the author of the forthcoming book “The Surprising Design of Market Economies.”

How to Get Business to Pay Its Share, NYT, 3.5.2012,
http://www.nytimes.com/2012/05/04/opinion/solving-the-corporate-tax-code-puzzle.html

How Apple Sidesteps Billions in Taxes

April 28, 2012
The New York Times
By CHARLES DUHIGG and DAVID KOCIENIEWSKI

RENO, Nev. — Apple, the world’s most profitable technology company, doesn’t design iPhones here. It doesn’t run AppleCare customer service from this city. And it doesn’t manufacture MacBooks or iPads anywhere nearby.

Yet, with a handful of employees in a small office here in Reno, Apple has done something central to its corporate strategy: it has avoided millions of dollars in taxes in California and 20 other states.

Apple’s headquarters are in Cupertino, Calif. By putting an office in Reno, just 200 miles away, to collect and invest the company’s profits, Apple sidesteps state income taxes on some of those gains.

California’s corporate tax rate is 8.84 percent. Nevada’s? Zero.

Setting up an office in Reno is just one of many legal methods Apple uses to reduce its worldwide tax bill by billions of dollars each year. As it has in Nevada, Apple has created subsidiaries in low-tax places like Ireland, the Netherlands, Luxembourg and the British Virgin Islands — some little more than a letterbox or an anonymous office — that help cut the taxes it pays around the world.

Almost every major corporation tries to minimize its taxes, of course. For Apple, the savings are especially alluring because the company’s profits are so high. Wall Street analysts predict Apple could earn up to $45.6 billion in its current fiscal year — which would be a record for any American business.

Apple serves as a window on how technology giants have taken advantage of tax codes written for an industrial age and ill suited to today’s digital economy. Some profits at companies like Apple, Google, Amazon, Hewlett-Packard and Microsoft derive not from physical goods but from royalties on intellectual property, like the patents on software that makes devices work. Other times, the products themselves are digital, like downloaded songs. It is much easier for businesses with royalties and digital products to move profits to low-tax countries than it is, say, for grocery stores or automakers. A downloaded application, unlike a car, can be sold from anywhere.

The growing digital economy presents a conundrum for lawmakers overseeing corporate taxation: although technology is now one of the nation’s largest and most valued industries, many tech companies are among the least taxed, according to government and corporate data. Over the last two years, the 71 technology companies in the Standard & Poor’s 500-stock index — including Apple, Google, Yahoo and Dell — reported paying worldwide cash taxes at a rate that, on average, was a third less than other S.& P. companies’. (Cash taxes may include payments for multiple years.)

Even among tech companies, Apple’s rates are low. And while the company has remade industries, ignited economic growth and delighted customers, it has also devised corporate strategies that take advantage of gaps in the tax code, according to former executives who helped create those strategies.

Apple, for instance, was among the first tech companies to designate overseas salespeople in high-tax countries in a manner that allowed them to sell on behalf of low-tax subsidiaries on other continents, sidestepping income taxes, according to former executives. Apple was a pioneer of an accounting technique known as the “Double Irish With a Dutch Sandwich,” which reduces taxes by routing profits through Irish subsidiaries and the Netherlands and then to the Caribbean. Today, that tactic is used by hundreds of other corporations — some of which directly imitated Apple’s methods, say accountants at those companies.

Without such tactics, Apple’s federal tax bill in the United States most likely would have been $2.4 billion higher last year, according to a recent study by a former Treasury Department economist, Martin A. Sullivan. As it stands, the company paid cash taxes of $3.3 billion around the world on its reported profits of $34.2 billion last year, a tax rate of 9.8 percent. (Apple does not disclose what portion of those payments was in the United States, or what portion is assigned to previous or future years.)

By comparison, Wal-Mart last year paid worldwide cash taxes of $5.9 billion on its booked profits of $24.4 billion, a tax rate of 24 percent, which is about average for non-tech companies.

Apple’s domestic tax bill has piqued particular curiosity among corporate tax experts because although the company is based in the United States, its profits — on paper, at least — are largely foreign. While Apple contracts out much of the manufacturing and assembly of its products to other companies overseas, the majority of Apple’s executives, product designers, marketers, employees, research and development, and retail stores are in the United States. Tax experts say it is therefore reasonable to expect that most of Apple’s profits would be American as well. The nation’s tax code is based on the concept that a company “earns” income where value is created, rather than where products are sold.

However, Apple’s accountants have found legal ways to allocate about 70 percent of its profits overseas, where tax rates are often much lower, according to corporate filings.

Neither the government nor corporations make tax returns public, and a company’s taxable income often differs from the profits disclosed in annual reports. Companies report their cash outlays for income taxes in their annual Form 10-K, but it is impossible from those numbers to determine precisely how much, in total, corporations pay to governments. In Apple’s last annual disclosure, the company listed its worldwide taxes — which includes cash taxes paid as well as deferred taxes and other charges — at $8.3 billion, an effective tax rate of almost a quarter of profits.

However, tax analysts and scholars said that figure most likely overstated how much the company would hand to governments because it included sums that might never be paid. “The information on 10-Ks is fiction for most companies,” said Kimberly Clausing, an economist at Reed College who specializes in multinational taxation. “But for tech companies it goes from fiction to farcical.”

Apple, in a statement, said it “has conducted all of its business with the highest of ethical standards, complying with applicable laws and accounting rules.” It added, “We are incredibly proud of all of Apple’s contributions.”

Apple “pays an enormous amount of taxes, which help our local, state and federal governments,” the statement also said. “In the first half of fiscal year 2012, our U.S. operations have generated almost $5 billion in federal and state income taxes, including income taxes withheld on employee stock gains, making us among the top payers of U.S. income tax.”

The statement did not specify how it arrived at $5 billion, nor did it address the issue of deferred taxes, which the company may pay in future years or decide to defer indefinitely. The $5 billion figure appears to include taxes ultimately owed by Apple employees.

The sums paid by Apple and other tech corporations is a point of contention in the company’s backyard.

A mile and a half from Apple’s Cupertino headquarters is De Anza College, a community college that Steve Wozniak, one of Apple’s founders, attended from 1969 to 1974. Because of California’s state budget crisis, De Anza has cut more than a thousand courses and 8 percent of its faculty since 2008.

Now, De Anza faces a budget gap so large that it is confronting a “death spiral,” the school’s president, Brian Murphy, wrote to the faculty in January. Apple, of course, is not responsible for the state’s financial shortfall, which has numerous causes. But the company’s tax policies are seen by officials like Mr. Murphy as symptomatic of why the crisis exists.

“I just don’t understand it,” he said in an interview. “I’ll bet every person at Apple has a connection to De Anza. Their kids swim in our pool. Their cousins take classes here. They drive past it every day, for Pete’s sake.

“But then they do everything they can to pay as few taxes as possible.”

Escaping State Taxes

In 2006, as Apple’s bank accounts and stock price were rising, company executives came here to Reno and established a subsidiary named Braeburn Capital to manage and invest the company’s cash. Braeburn is a variety of apple that is simultaneously sweet and tart.

Today, Braeburn’s offices are down a narrow hallway inside a bland building that sits across from an abandoned restaurant. Inside, there are posters of candy-colored iPods and a large Apple insignia, as well as a handful of desks and computer terminals.

When someone in the United States buys an iPhone, iPad or other Apple product, a portion of the profits from that sale is often deposited into accounts controlled by Braeburn, and then invested in stocks, bonds or other financial instruments, say company executives. Then, when those investments turn a profit, some of it is shielded from tax authorities in California by virtue of Braeburn’s Nevada address.

Since founding Braeburn, Apple has earned more than $2.5 billion in interest and dividend income on its cash reserves and investments around the globe. If Braeburn were located in Cupertino, where Apple’s top executives work, a portion of the domestic income would be taxed at California’s 8.84 percent corporate income tax rate.

But in Nevada there is no state corporate income tax and no capital gains tax.

What’s more, Braeburn allows Apple to lower its taxes in other states — including Florida, New Jersey and New Mexico — because many of those jurisdictions use formulas that reduce what is owed when a company’s financial management occurs elsewhere. Apple does not disclose what portion of cash taxes is paid to states, but the company reported that it owed $762 million in state income taxes nationwide last year. That effective state tax rate is higher than the rate of many other tech companies, but as Ms. Clausing and other tax analysts have noted, such figures are often not reliable guides to what is actually paid.

Dozens of other companies, including Cisco, Harley-Davidson and Microsoft, have also set up Nevada subsidiaries that bypass taxes in other states. Hundreds of other corporations reap similar savings by locating offices in Delaware.

But some in California are unhappy that Apple and other California-based companies have moved financial operations to tax-free states — particularly since lawmakers have offered them tax breaks to keep them in the state.

In 1996, 1999 and 2000, for instance, the California Legislature increased the state’s research and development tax credit, permitting hundreds of companies, including Apple, to avoid billions in state taxes, according to legislative analysts. Apple has reported tax savings of $412 million from research and development credits of all sorts since 1996.

Then, in 2009, after an intense lobbying campaign led by Apple, Cisco, Oracle, Intel and other companies, the California Legislature reduced taxes for corporations based in California but operating in other states or nations. Legislative analysts say the change will eventually cost the state government about $1.5 billion a year.

Such lost revenue is one reason California now faces a budget crisis, with a shortfall of more than $9.2 billion in the coming fiscal year alone. The state has cut some health care programs, significantly raised tuition at state universities, cut services to the disabled and proposed a $4.8 billion reduction in spending on kindergarten and other grades.

Apple declined to comment on its Nevada operations. Privately, some executives said it was unfair to criticize the company for reducing its tax bill when thousands of other companies acted similarly. If Apple volunteered to pay more in taxes, it would put itself at a competitive disadvantage, they argued, and do a disservice to its shareholders.

Indeed, Apple’s decisions have yielded benefits. After announcing one of the best quarters in its history last week, the company said it had net profits of $24.7 billion on revenues of $85.5 billion in the first half of the fiscal year, and more than $110 billion in the bank, according to company filings.

A Global Tax Strategy

Every second of every hour, millions of times each day, in living rooms and at cash registers, consumers click the “Buy” button on iTunes or hand over payment for an Apple product.

And with that, an international financial engine kicks into gear, moving money across continents in the blink of an eye. While Apple’s Reno office helps the company avoid state taxes, its international subsidiaries — particularly the company’s assignment of sales and patent royalties to other nations — help reduce taxes owed to the American and other governments.

For instance, one of Apple’s subsidiaries in Luxembourg, named iTunes S.à r.l., has just a few dozen employees, according to corporate documents filed in that nation and a current executive. The only indication of the subsidiary’s presence outside is a letterbox with a lopsided slip of paper reading “ITUNES SARL.”

Luxembourg has just half a million residents. But when customers across Europe, Africa or the Middle East — and potentially elsewhere — download a song, television show or app, the sale is recorded in this small country, according to current and former executives. In 2011, iTunes S.à r.l.’s revenue exceeded $1 billion, according to an Apple executive, representing roughly 20 percent of iTunes’s worldwide sales.

The advantages of Luxembourg are simple, say Apple executives. The country has promised to tax the payments collected by Apple and numerous other tech corporations at low rates if they route transactions through Luxembourg. Taxes that would have otherwise gone to the governments of Britain, France, the United States and dozens of other nations go to Luxembourg instead, at discounted rates.

“We set up in Luxembourg because of the favorable taxes,” said Robert Hatta, who helped oversee Apple’s iTunes retail marketing and sales for European markets until 2007. “Downloads are different from tractors or steel because there’s nothing you can touch, so it doesn’t matter if your computer is in France or England. If you’re buying from Luxembourg, it’s a relationship with Luxembourg.”

An Apple spokesman declined to comment on the Luxembourg operations.

Downloadable goods illustrate how modern tax systems have become increasingly ill equipped for an economy dominated by electronic commerce. Apple, say former executives, has been particularly talented at identifying legal tax loopholes and hiring accountants who, as much as iPhone designers, are known for their innovation. In the 1980s, for instance, Apple was among the first major corporations to designate overseas distributors as “commissionaires,” rather than retailers, said Michael Rashkin, Apple’s first director of tax policy, who helped set up the system before leaving in 1999.

To customers the designation was virtually unnoticeable. But because commissionaires never technically take possession of inventory — which would require them to recognize taxes — the structure allowed a salesman in high-tax Germany, for example, to sell computers on behalf of a subsidiary in low-tax Singapore. Hence, most of those profits would be taxed at Singaporean, rather than German, rates.

The Double Irish

In the late 1980s, Apple was among the pioneers in creating a tax structure — known as the Double Irish — that allowed the company to move profits into tax havens around the world, said Tim Jenkins, who helped set up the system as an Apple European finance manager until 1994.

Apple created two Irish subsidiaries — today named Apple Operations International and Apple Sales International — and built a glass-encased factory amid the green fields of Cork. The Irish government offered Apple tax breaks in exchange for jobs, according to former executives with knowledge of the relationship.

But the bigger advantage was that the arrangement allowed Apple to send royalties on patents developed in California to Ireland. The transfer was internal, and simply moved funds from one part of the company to a subsidiary overseas. But as a result, some profits were taxed at the Irish rate of approximately 12.5 percent, rather than at the American statutory rate of 35 percent. In 2004, Ireland, a nation of less than 5 million, was home to more than one-third of Apple’s worldwide revenues, according to company filings. (Apple has not released more recent estimates.)

Moreover, the second Irish subsidiary — the “Double” — allowed other profits to flow to tax-free companies in the Caribbean. Apple has assigned partial ownership of its Irish subsidiaries to Baldwin Holdings Unlimited in the British Virgin Islands, a tax haven, according to documents filed there and in Ireland. Baldwin Holdings has no listed offices or telephone number, and its only listed director is Peter Oppenheimer, Apple’s chief financial officer, who lives and works in Cupertino. Baldwin apples are known for their hardiness while traveling.

Finally, because of Ireland’s treaties with European nations, some of Apple’s profits could travel virtually tax-free through the Netherlands — the Dutch Sandwich — which made them essentially invisible to outside observers and tax authorities.

Robert Promm, Apple’s controller in the mid-1990s, called the strategy “the worst-kept secret in Europe.”

It is unclear precisely how Apple’s overseas finances now function. In 2006, the company reorganized its Irish divisions as unlimited corporations, which have few requirements to disclose financial information.

However, tax experts say that strategies like the Double Irish help explain how Apple has managed to keep its international taxes to 3.2 percent of foreign profits last year, to 2.2 percent in 2010, and in the single digits for the last half-decade, according to the company’s corporate filings.

Apple declined to comment on its operations in Ireland, the Netherlands and the British Virgin Islands.

Apple reported in its last annual disclosures that $24 billion — or 70 percent — of its total $34.2 billion in pretax profits were earned abroad, and 30 percent were earned in the United States. But Mr. Sullivan, the former Treasury Department economist who today writes for the trade publication Tax Analysts, said that “given that all of the marketing and products are designed here, and the patents were created in California, that number should probably be at least 50 percent.”

If profits were evenly divided between the United States and foreign countries, Apple’s federal tax bill would have increased by about $2.4 billion last year, he said, because a larger amount of its profits would have been subject to the United States’ higher corporate income tax rate.

“Apple, like many other multinationals, is using perfectly legal methods to keep a significant portion of their profits out of the hands of the I.R.S.,” Mr. Sullivan said. “And when America’s most profitable companies pay less, the general public has to pay more.”

Other tax experts, like Edward D. Kleinbard, former chief of staff of the Congressional Joint Committee on Taxation, have reached similar conclusions.

“This tax avoidance strategy used by Apple and other multinationals doesn’t just minimize the companies’ U.S. taxes,” said Mr. Kleinbard, now a professor of tax law at the University of Southern California. “It’s German tax and French tax and tax in the U.K. and elsewhere.”

One downside for companies using such strategies is that when money is sent overseas, it cannot be returned to the United States without incurring a new tax bill.

However, that might change. Apple, which holds $74 billion offshore, last year aligned itself with more than four dozen companies and organizations urging Congress for a “repatriation holiday” that would permit American businesses to bring money home without owing large taxes. The coalition, which includes Google, Microsoft and Pfizer, has hired dozens of lobbyists to push for the measure, which has not yet come up for vote. The tax break would cost the federal government $79 billion over the next decade, according to a Congressional report.

Fallout in California

In one of his last public appearances before his death, Steven P. Jobs, Apple’s chief executive, addressed Cupertino’s City Council last June, seeking approval to build a new headquarters.

Most of the Council was effusive in its praise of the proposal. But one councilwoman, Kris Wang, had questions.

How will residents benefit? she asked. Perhaps Apple could provide free wireless Internet to Cupertino, she suggested, something Google had done in neighboring Mountain View.

“See, I’m a simpleton; I’ve always had this view that we pay taxes, and the city should do those things,” Mr. Jobs replied, according to a video of the meeting. “That’s why we pay taxes. Now, if we can get out of paying taxes, I’ll be glad to put up Wi-Fi.”

He suggested that, if the City Council were unhappy, perhaps Apple could move. The company is Cupertino’s largest taxpayer, with more than $8 million in property taxes assessed by local officials last year.

Ms. Wang dropped her suggestion.

Cupertino, Ms. Wang said in an interview, has real financial problems. “We’re proud to have Apple here,” said Ms. Wang, who has since left the Council. “But how do you get them to feel more connected?”

Other residents argue that Apple does enough as Cupertino’s largest employer and that tech companies, in general, have buoyed California’s economy. Apple’s workers eat in local restaurants, serve on local boards and donate to local causes. Silicon Valley’s many millionaires pay personal state income taxes. In its statement, Apple said its “international growth is creating jobs domestically, since we oversee most of our operations from California.”

“The vast majority of our global work force remains in the U.S.,” the statement continued, “with more than 47,000 full-time employees in all 50 states.”

Moreover, Apple has given nearby Stanford University more than $50 million in the last two years. The company has also donated $50 million to an African aid organization. In its statement, Apple said: “We have contributed to many charitable causes but have never sought publicity for doing so. Our focus has been on doing the right thing, not getting credit for it. In 2011, we dramatically expanded the number of deserving organizations we support by initiating a matching gift program for our employees.”

Still, some, including De Anza College’s president, Mr. Murphy, say the philanthropy and job creation do not offset Apple’s and other companies’ decisions to circumvent taxes. Within 20 minutes of the financially ailing school are the global headquarters of Google, Facebook, Intel, Hewlett-Packard and Cisco.

“When it comes time for all these companies — Google and Apple and Facebook and the rest — to pay their fair share, there’s a knee-jerk resistance,” Mr. Murphy said. “They’re philosophically antitax, and it’s decimating the state.”

“But I’m not complaining,” he added. “We can’t afford to upset these guys. We need every dollar we can get.”

Additional reporting was contributed by Keith Bradsher in Hong Kong,

Siem Eikelenboom in Amsterdam, Dean Greenaway in the British Virgin Islands,

Scott Sayare in Luxembourg and Jason Woodard in Singapore.

How Apple Sidesteps Billions in Taxes, NYT, 28.4.2012,
http://www.nytimes.com/2012/04/29/business/apples-tax-strategy-aims-at-low-tax-states-and-nations.html

Antipoverty Tax Program Offers Relief,

Though Often Temporary

April 17, 2012
The New York Times
By SABRINA TAVERNISE

DURHAM, N.C. — Karen Spain spent several long months before receiving her tax refund this year in a state of suspended panic. The rent was three months late. Her car’s brakes were shot. And she could no longer afford to pay her electricity bill.

So when the refund finally arrived — a $7,200 cash infusion that was about a third of what she earned all last year as an assistant manager at an auto parts store — it brought a certain measure of relief, both financial and psychological. That did not last long.

“Did we celebrate?” said Ms. Spain, a 49-year-old mother of two. “No. We maintain, that’s all we do. We are just trying to keep our heads above water.”

It is tax time, the season when the country’s largest antipoverty program, the earned income tax credit, plows billions of dollars into mailboxes and bank accounts of low-income working Americans like Ms. Spain. It is the most important financial moment of the year for many people in the bottom half of the wage bracket, a time to pay off old bills, make car repairs, buy children clothes and maybe make a big purchase like a refrigerator or a TV.

As incomes among the country’s lowest wage earners continue to stagnate, the credit has played a critical role in smoothing the hard edges of an unforgiving labor market for the country’s most vulnerable workers and helping stem the tide of income inequality that has been rising among Americans in recent decades.

Nearly one in five filers now receive the credit — about 28 million returns in the 2010 tax year, the most recent year figures are available — representing the highest percentage since the program began in the 1970s, according to the Brookings Institution.

The effect has been significant. The Center on Budget and Policy Priorities, a research group based in Washington, estimates the credit lifted about six million Americans out of poverty last year.

“We find clear evidence that the E.I.T.C. has significantly reduced poverty rates and income inequality,” said Raj Chetty, an economist at Harvard who has studied the subsidy’s effect across cities. “The program is pulling up the lower end of the income distribution.”

The credit also seems to have an important psychological side effect: It makes people feel middle class.

“You get this feeling of, ‘Hey, I’m like them now,’ “ said Wesley Rouse, 27, a property manager in Durham.

But the boost is often temporary. Many people who receive the credit fall back into poverty over the course of the year, caught in the same cycle of low-wage work and reliance on credit that put them there in the first place.

One problem is the form the credit takes. The refund can pay as much as 40 percent of a family’s annual income at once, a windfall that many experts are now arguing should be changed by paying the refund in installments over the year.

“It’s feast or famine,” said Mae Watson Grote, director of the Financial Clinic, a New York-based group that teaches financial planning to low-income New Yorkers. “It’s very hard to manage when it’s a windfall.”

That cycle has the natural force of a tide at National Pawn, a shop in a working-class area of north Raleigh.

“We’re all cleaned out,” said Sundeep Joshi, the store’s manager, waving his hand toward empty shelves, reflecting a whirlwind of recent purchases. But people will start to bring things back to sell as their budgets get squeezed, he said. By July, the back room is usually packed with pawned items. “That’s the story every year,” he said.

Kathryn Edin, a professor of public policy at Harvard whose coming book, “It’s Not Like I’m Poor: How Working Families Make Ends Meet in a Post-Welfare World,” finds that recipients spent the subsidy overwhelmingly on bills and current expenses. Less than 10 percent of the money paid out was saved, she found. “The E.I.T.C. is one of the best social policies we’ve ever devised, but it does not solve the fundamental problem that you still can’t live on your wages,” she said.

For Ms. Spain, the subsidy was a lifeline. Together with other tax credits, it pushed her family income up to about $27,000, above the federal poverty threshold of $22,800 for a family of four in 2011. (Her husband, an unemployed cook, did not earn much income.)

But the money went fast. Rent ate up a third. Then came brakes and a new bumper for her 1998 Honda Civic. She paid the overdue electricity bill, reactivated her car insurance and bought some new clothes for her two girls, ages 8 and 9.

“You get these large sums, but you have to repair things, and pay back rent, and you owe on all your bills,” Ms. Spain said. “I’m not at the point where I can put $500 aside and just let it sit there and grow.”

That economic vulnerability has spawned an industry of lenders who hawk short-term loans at exorbitant rates to tide people over until tax time, said Peter Skillern, executive director of Reinvestment Partners, a nonprofit organization in Durham that helps low-income families file their taxes. The practice, known as “refund anticipation lending,” was effectively banned by federal regulators this month, but low-income filers still face an abundance of rip-off schemes and high tax preparation fees, he said.

“It’s ‘What can I get today versus what’s coming tomorrow,’ “ said Brenda Dozier, a payroll specialist who said her sister has relied on refund anticipation loans. “I tell people, ‘You made it this far, just hold on.’ “

Ms. Spain said she paid a company $550 to do her taxes last year so she could get them — and the refund — back fast, an expenditure she now regrets.

The credit may not permanently change people’s circumstances, but researchers are finding evidence that many who receive it do not do so for very long. One recent study found that 60 percent of those who got the benefit stopped claiming it after two years. That is because people’s finances tend to be fluid, moving them in and out of the program, said John Horowitz, an economist at Ball State University in Indiana, one of the authors of the study, which examined tax records from 1989 to 2006. One in two American families with children received the credit at least once during that period, he said.

Ms. Spain yearns for a time when she will no longer be eligible for the credit because she is earning more money. She remembers wistfully her former job at Nortel that paid $85,000 a year and the feeling of going to a restaurant or a movie without worrying about her budget.

“Someday we’ll wait and file in April,” she said. “And if we need money before then, we’ll just go to the bank.”

Antipoverty Tax Program Offers Relief, Though Often Temporary, NYT, 17.4.2012,
http://www.nytimes.com/2012/04/17/us/antipoverty-tax-program-offers-relief-though-temporary.html

Reform and Corporate Taxes

February 22, 2012
The New York Times

The corporate tax system is a mess. The United States has one of the highest corporate tax rates in the world, but too many businesses still don’t contribute their fair share of revenue, in large part because of numerous loopholes, subsidies and other opportunities for tax avoidance. While some industries and companies pay little or no tax because they qualify for generous breaks or have really good lawyers, others are taxed heavily.

There is no doubt that a system that is more competitive, more efficient — the current mind-numbing complexity makes planning far too difficult — and more fair would be a plus for the economy. President Obama’s framework for business tax reform, released on Wednesday, is a welcome start for a much-needed debate on comprehensive tax reform. But we already have two big concerns.

While the administration insists that business tax reform should not add to the deficit, the country needs to raise more revenue to care for an aging population, rebuild infrastructure, improve education and tackle the deficit. Corporations, which benefit from all of those, should, as a matter of necessity and fairness, pay more.

Our other concern is that like all tax reform, the potential for gaming the process is ever present and unless it is vigilantly managed could actually reduce revenue and add to the deficit.

Take the framework’s central reform: reducing the top corporate rate from 35 percent to 28 percent, while at the same time doing away with loopholes and subsidies. In theory, it is a sound approach, which would reduce complexity while bringing the rate in line with that of other advanced nations without busting the budget. But, even if they made it past the lobbyists, the specific loophole closers in Mr. Obama’s new framework — including ending subsidies for oil and gas exploration, corporate jets and private equity partners — are far too small to make up for dropping the top rate.

As for the big money subsidies that would have to be cut or ended to pay for a lower rate — including less generous depreciation and reduced deductibility of interest on corporate debt — the White House merely presents them as part of a menu of options for “consideration.”

The framework’s call for a minimum corporate tax on the foreign earnings of American companies is a step in the right direction. Under current law, various tax provisions and tactics allow companies to reduce or defer taxes by shifting ever more production and profits overseas. But the idea is blunted by the framework’s failure to say what the minimum tax rate should be.

Nor does the framework broach other reforms like taxing foreign profits when they are earned rather than when they are repatriated to the United States — that could ultimately be more effective in getting multinationals to pay more.

Even with its shortcomings, Mr. Obama’s proposal presents a needed contrast to the Republicans’ approach to corporate taxes. Last year, Dave Camp, the chairman of the House Ways and Means Committee, proposed a top corporate rate of 25 percent without saying how he would pay for the tax cut. Mitt Romney has done somewhat better, calling for a 25 percent rate to be coupled with “broadening” the corporate tax base, which generally means closing loopholes. But he has yet to say which tax breaks he would end.

Serious reform requires specific proposals, tough trade-offs and hard numbers attached. Without all of those, this effort could too easily be hijacked by powerful corporations and their high-paid lobbyists.

Reform and Corporate Taxes, NYT, 22.2.2012,
http://www.nytimes.com/2012/02/23/opinion/reform-and-corporate-taxes.html

Things to Tax

November 27, 2011
The New York Times
By PAUL KRUGMAN

The supercommittee was a superdud — and we should be glad. Nonetheless, at some point we’ll have to rein in budget deficits. And when we do, here’s a thought: How about making increased revenue an important part of the deal?

And I don’t just mean a return to Clinton-era tax rates. Why should 1990s taxes be considered the outer limit of revenue collection? Think about it: The long-run budget outlook has darkened, which means that some hard choices must be made. Why should those choices only involve spending cuts? Why not also push some taxes above their levels in the 1990s?

Let me suggest two areas in which it would make a lot of sense to raise taxes in earnest, not just return them to pre-Bush levels: taxes on very high incomes and taxes on financial transactions.

About those high incomes: In my last column I suggested that the very rich, who have had huge income gains over the last 30 years, should pay more in taxes. I got many responses from readers, with a common theme being that this was silly, that even confiscatory taxes on the wealthy couldn’t possibly raise enough money to matter.

Folks, you’re living in the past. Once upon a time America was a middle-class nation, in which the super-elite’s income was no big deal. But that was another country.

The I.R.S. reports that in 2007, that is, before the economic crisis, the top 0.1 percent of taxpayers — roughly speaking, people with annual incomes over $2 million — had a combined income of more than a trillion dollars. That’s a lot of money, and it wouldn’t be hard to devise taxes that would raise a significant amount of revenue from those super-high-income individuals.

For example, a recent report by the nonpartisan Tax Policy Center points out that before 1980 very-high-income individuals fell into tax brackets well above the 35 percent top rate that applies today. According to the center’s analysis, restoring those high-income brackets would have raised $78 billion in 2007, or more than half a percent of G.D.P. I’ve extrapolated that number using Congressional Budget Office projections, and what I get for the next decade is that high-income taxation could shave more than $1 trillion off the deficit.

It’s instructive to compare that estimate with the savings from the kinds of proposals that are actually circulating in Washington these days. Consider, for example, proposals to raise the age of Medicare eligibility to 67, dealing a major blow to millions of Americans. How much money would that save?

Well, none from the point of view of the nation as a whole, since we would be pushing seniors out of Medicare and into private insurance, which has substantially higher costs. True, it would reduce federal spending — but not by much. The budget office estimates that outlays would fall by only $125 billion over the next decade, as the age increase phased in. And even when fully phased in, this partial dismantling of Medicare would reduce the deficit only about a third as much as could be achieved with higher taxes on the very rich.

So raising taxes on the very rich could make a serious contribution to deficit reduction. Don’t believe anyone who claims otherwise.

And then there’s the idea of taxing financial transactions, which have exploded in recent decades. The economic value of all this trading is dubious at best. In fact, there’s considerable evidence suggesting that too much trading is going on. Still, nobody is proposing a punitive tax. On the table, instead, are proposals like the one recently made by Senator Tom Harkin and Representative Peter DeFazio for a tiny fee on financial transactions.

And here’s the thing: Because there are so many transactions, such a fee could yield several hundred billion dollars in revenue over the next decade. Again, this compares favorably with the savings from many of the harsh spending cuts being proposed in the name of fiscal responsibility.

But wouldn’t such a tax hurt economic growth? As I said, the evidence suggests not — if anything, it suggests that to the extent that taxing financial transactions reduces the volume of wheeling and dealing, that would be a good thing.

And it’s instructive, too, to note that some countries already have financial transactions taxes — and that among those who do are Hong Kong and Singapore. If some conservative starts claiming that such taxes are an unwarranted government intrusion, you might want to ask him why such taxes are imposed by the two countries that score highest on the Heritage Foundation’s Index of Economic Freedom.

Now, the tax ideas I’ve just mentioned wouldn’t be enough, by themselves, to fix our deficit. But the same is true of proposals for spending cuts. The point I’m making here isn’t that taxes are all we need; it is that they could and should be a significant part of the solution.

Things to Tax, NYT, 27.11.2011,
http://www.nytimes.com/2011/11/28/opinion/krugman-things-to-tax.html

Putting Millionaires Before Jobs

November 3, 2011
The New York Times

There’s nothing partisan about a road or a bridge or an airport; Democrats and Republicans have voted to spend billions on them for decades and long supported rebuilding plans in their own states. On Thursday, though, when President Obama’s plan to spend $60 billion on infrastructure repairs came up for a vote in the Senate, not a single Republican agreed to break the party’s filibuster.

That’s because the bill would pay for itself with a 0.7 percent surtax on people making more than $1 million. That would affect about 345,000 taxpayers, according to Citizens for Tax Justice, adding an average of $13,457 to their annual tax bills. Protecting that elite group — and hewing to their rigid antitax vows — was more important to Senate Republicans than the thousands of construction jobs the bill would have helped create, or the millions of people who would have used the rebuilt roads, bridges and airports.

Senate Republicans filibustered the president’s full jobs act last month for the same reasons. And they have vowed to block the individual pieces of that bill that Democrats are now bringing to the floor. Senate Democrats have also accused them of opposing any good idea that might put people back to work and rev the economy a bit before next year’s presidential election.

There is no question that the infrastructure bill would be good for the flagging economy — and good for the country’s future development. It would directly spend $50 billion on roads, bridges, airports and mass transit systems, and it would then provide another $10 billion to an infrastructure bank to encourage private-sector investment in big public works projects.

Senator Kay Bailey Hutchison, a Republican of Texas, co-sponsored an infrastructure-bank bill in March, and other Republicans have supported similar efforts over the years. But the Republicans’ determination to stick to an antitax pledge clearly trumps even their own good ideas.

A competing Republican bill, which also failed on Thursday, was cobbled together in an attempt to make it appear as if the party has equally valid ideas on job creation and rebuilding. It would have extended the existing highway and public transportation financing for two years, paying for it with a $40 billion cut to other domestic programs. Republican senators also threw in a provision that would block the Environmental Protection Agency from issuing new clean air rules. Only in the fevered dreams of corporate polluters could that help create jobs.

Mitch McConnell, the Senate Republican leader, bitterly accused Democrats of designing their infrastructure bill to fail by paying for it with a millionaire’s tax, as if his party’s intransigence was so indomitable that daring to challenge it is somehow underhanded.

The only good news is that the Democrats aren’t going to stop. There are many more jobs bills to come, including extension of unemployment insurance and the payroll-tax cut. If Republicans are so proud of blocking all progress, they will have to keep doing it over and over again, testing the patience of American voters.

Putting Millionaires Before Jobs, NYT, 3.11.2011,
http://www.nytimes.com/2011/11/04/opinion/the-senate-puts-millionaires-before-jobs.html

G.E.’s Strategies Let It Avoid Taxes Altogether

March 24, 2011
The New York Times
By DAVID KOCIENIEWSKI

General Electric, the nation’s largest corporation, had a very good year in 2010.

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.

Its American tax bill? None. In fact, G.E. claimed a tax benefit of $3.2 billion.

That may be hard to fathom for the millions of American business owners and households now preparing their own returns, but low taxes are nothing new for G.E. The company has been cutting the percentage of its American profits paid to the Internal Revenue Service for years, resulting in a far lower rate than at most multinational companies.

Its extraordinary success is based on an aggressive strategy that mixes fierce lobbying for tax breaks and innovative accounting that enables it to concentrate its profits offshore. G.E.’s giant tax department, led by a bow-tied former Treasury official named John Samuels, is often referred to as the world’s best tax law firm. Indeed, the company’s slogan “Imagination at Work” fits this department well. The team includes former officials not just from the Treasury, but also from the I.R.S. and virtually all the tax-writing committees in Congress.

While General Electric is one of the most skilled at reducing its tax burden, many other companies have become better at this as well. 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.

In a regulatory filing just a week before the Japanese disaster put a spotlight on the company’s nuclear reactor business, G.E. reported that its tax burden was 7.4 percent of its American profits, about a third of the average reported by other American multinationals. Even those figures are overstated, because they include taxes that will be paid only if the company brings its overseas profits back to the United States. With those profits still offshore, G.E. is effectively getting money back.

Such strategies, as well as changes in tax laws that encouraged some businesses and professionals to file as individuals, have pushed down the corporate share of the nation’s tax receipts — from 30 percent of all federal revenue in the mid-1950s to 6.6 percent in 2009.

Yet many companies say the current level is so high it hobbles them in competing with foreign rivals. Even as the government faces a mounting budget deficit, the talk in Washington is about lower rates. President Obama has said he is considering an overhaul of the corporate tax system, with an eye to lowering the top rate, ending some tax subsidies and loopholes and generating the same amount of revenue. He has designated G.E.’s chief executive, Jeffrey R. Immelt, as his liaison to the business community and as the chairman of the President’s Council on Jobs and Competitiveness, and it is expected to discuss corporate taxes.

“He understands what it takes for America to compete in the global economy,” Mr. Obama said of Mr. Immelt, on his appointment in January, after touring a G.E. factory in upstate New York that makes turbines and generators for sale around the world.

A review of company filings and Congressional records shows that one of the most striking advantages of General Electric is its ability to lobby for, win and take advantage of tax breaks.

Over the last decade, G.E. has spent tens of millions of dollars to push for changes in tax law, from more generous depreciation schedules on jet engines to “green energy” credits for its wind turbines. But the most lucrative of these measures allows G.E. to operate a vast leasing and lending business abroad with profits that face little foreign taxes and no American taxes as long as the money remains overseas.

Company officials say that these measures are necessary for G.E. to compete against global rivals and that they are acting as responsible citizens. “G.E. is committed to acting with integrity in relation to our tax obligations,” said Anne Eisele, a spokeswoman. “We are committed to complying with tax rules and paying all legally obliged taxes. At the same time, we have a responsibility to our shareholders to legally minimize our costs.”

The assortment of tax breaks G.E. has won in Washington has provided a significant short-term gain for the company’s executives and shareholders. While the financial crisis led G.E. to post a loss in the United States in 2009, regulatory filings show that in the last five years, G.E. has accumulated $26 billion in American profits, and received a net tax benefit from the I.R.S. of $4.1 billion.

But critics say the use of so many shelters amounts to corporate welfare, allowing G.E. not just to avoid taxes on profitable overseas lending but also to amass tax credits and write-offs that can be used to reduce taxes on billions of dollars of profit from domestic manufacturing. They say that the assertive tax avoidance of multinationals like G.E. not only shortchanges the Treasury, but also harms the economy by discouraging investment and hiring in the United States.

“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.”

The shelters are so crucial to G.E.’s bottom line that when Congress threatened to let the most lucrative one expire in 2008, the company came out in full force. G.E. officials worked with dozens of financial companies to send letters to Congress and hired a bevy of outside lobbyists.

The head of its tax team, Mr. Samuels, met with Representative Charles B. Rangel, then chairman of the Ways and Means Committee, which would decide the fate of the tax break. As he sat with the committee’s staff members outside Mr. Rangel’s office, Mr. Samuels dropped to his knee and pretended to beg for the provision to be extended — a flourish made in jest, he said through a spokeswoman.

That day, Mr. Rangel reversed his opposition to the tax break, according to other Democrats on the committee.

The following month, Mr. Rangel and Mr. Immelt stood together at St. Nicholas Park in Harlem as G.E. announced that its foundation had awarded $30 million to New York City schools, including $11 million to benefit various schools in Mr. Rangel’s district. Joel I. Klein, then the schools chancellor, and Mayor Michael R. Bloomberg, who presided, said it was the largest gift ever to the city’s schools.

G.E. officials say the donation was granted solely on the merit of the project. “The foundation goes to great lengths to ensure grant decisions are not influenced by company government relations or lobbying priorities,” Ms. Eisele said.

Mr. Rangel, who was censured by Congress last year for soliciting donations from corporations and executives with business before his committee, said this month that the donation was unrelated to his official actions.

Defying Reagan’s Legacy

General Electric has been a household name for generations, with light bulbs, electric fans, refrigerators and other appliances in millions of American homes. But today the consumer appliance division accounts for less than 6 percent of revenue, while lending accounts for more than 30 percent. Industrial, commercial and medical equipment like power plant turbines and jet engines account for about 50 percent. Its industrial work includes everything from wind farms to nuclear energy projects like the troubled plant in Japan, built in the 1970s.

Because its lending division, GE Capital, has provided more than half of the company’s profit in some recent years, many Wall Street analysts view G.E. not as a manufacturer but as an unregulated lender that also makes dishwashers and M.R.I. machines.

As it has evolved, the company has used, and in some cases pioneered, aggressive strategies to lower its tax bill. In the mid-1980s, President Ronald Reagan overhauled the tax system after learning that G.E. — a company for which he had once worked as a commercial pitchman — was among dozens of corporations that had used accounting gamesmanship to avoid paying any taxes.

“I didn’t realize things had gotten that far out of line,” Mr. Reagan told the Treasury secretary, Donald T. Regan, according to Mr. Regan’s 1988 memoir. The president supported a change that closed loopholes and required G.E. to pay a far higher effective rate, up to 32.5 percent.

That pendulum began to swing back in the late 1990s. G.E. and other financial services firms won a change in tax law that would allow multinationals to avoid taxes on some kinds of banking and insurance income. The change meant that if G.E. financed the sale of a jet engine or generator in Ireland, for example, the company would no longer have to pay American tax on the interest income as long as the profits remained offshore.

Known as active financing, the tax break proved to be beneficial for investment banks, brokerage firms, auto and farm equipment companies, and lenders like GE Capital. This tax break allowed G.E. to avoid taxes on lending income from abroad, and permitted the company to amass tax credits, write-offs and depreciation. Those benefits are then used to offset taxes on its American manufacturing profits.

G.E. subsequently ramped up its lending business.

As the company expanded abroad, the portion of its profits booked in low-tax countries such as Ireland and Singapore grew far faster. From 1996 through 1998, its profits and revenue in the United States were in sync — 73 percent of the company’s total. Over the last three years, though, 46 percent of the company’s revenue was in the United States, but just 18 percent of its profits.

Martin A. Sullivan, a tax economist for the trade publication Tax Analysts, said that booking such a large percentage of its profits in low-tax countries has “allowed G.E. to bring its U.S. effective tax rate to rock-bottom levels.”

G.E. officials say the disparity between American revenue and American profit is the result of ordinary business factors, such as investment in overseas markets and heavy lending losses in the United States recently. The company also says the nation’s workers benefit when G.E. profits overseas.

“We believe that winning in markets outside the United States increases U.S. exports and jobs,” Mr. Samuels said through a spokeswoman. “If U.S. companies aren’t competitive outside of their home market, it will mean fewer, not more, jobs in the United States, as the business will go to a non-U.S. competitor.”

The company does not specify how much of its global tax savings derive from active financing, but called it “significant” in its annual report. Stock analysts estimate the tax benefit to G.E. to be hundreds of millions of dollars a year.

“Cracking down on offshore profit-shifting by financial companies like G.E. was one of the important achievements of President Reagan’s 1986 Tax Reform Act,” said Robert S. McIntyre, director of the liberal group Citizens for Tax Justice, who played a key role in those changes. “The fact that Congress was snookered into undermining that reform at the behest of companies like G.E. is an insult not just to Reagan, but to all the ordinary American taxpayers who have to foot the bill for G.E.’s rampant tax sheltering.”

A Full-Court Press

Minimizing taxes is so important at G.E. that Mr. Samuels has placed tax strategists in decision-making positions in many major manufacturing facilities and businesses around the globe. Mr. Samuels, a graduate of Vanderbilt University and the University of Chicago Law School, declined to be interviewed for this article. Company officials acknowledged that the tax department had expanded since he joined the company in 1988, and said it now had 975 employees.

At a tax symposium in 2007, a G.E. tax official said the department’s “mission statement” consisted of 19 rules and urged employees to divide their time evenly between ensuring compliance with the law and “looking to exploit opportunities to reduce tax.”

Transforming the most creative strategies of the tax team into law is another extensive operation. G.E. spends heavily on lobbying: more than $200 million over the last decade, according to the Center for Responsive Politics. Records filed with election officials show a significant portion of that money was devoted to tax legislation. G.E. has even turned setbacks into successes with Congressional help. After the World Trade Organization forced the United States to halt $5 billion a year in export subsidies to G.E. and other manufacturers, the company’s lawyers and lobbyists became deeply involved in rewriting a portion of the corporate tax code, according to news reports after the 2002 decision and a Congressional staff member.

By the time the measure — the American Jobs Creation Act — was signed into law by President George W. Bush in 2004, it contained more than $13 billion a year in tax breaks for corporations, many very beneficial to G.E. One provision allowed companies to defer taxes on overseas profits from leasing planes to airlines. It was so generous — and so tailored to G.E. and a handful of other companies — that staff members on the House Ways and Means Committee publicly complained that G.E. would reap “an overwhelming percentage” of the estimated $100 million in annual tax savings.

According to its 2007 regulatory filing, the company saved more than $1 billion in American taxes because of that law in the three years after it was enacted.

By 2008, however, concern over the growing cost of overseas tax loopholes put G.E. and other corporations on the defensive. With Democrats in control of both houses of Congress, momentum was building to let the active financing exception expire. Mr. Rangel of the Ways and Means Committee indicated that he favored letting it end and directing the new revenue — an estimated $4 billion a year — to other priorities.

G.E. pushed back. In addition to the $18 million allocated to its in-house lobbying department, the company spent more than $3 million in 2008 on lobbying firms assigned to the task.

Mr. Rangel dropped his opposition to the tax break. Representative Joseph Crowley, Democrat of New York, said he had helped sway Mr. Rangel by arguing that the tax break would help Citigroup, a major employer in Mr. Crowley’s district.

G.E. officials say that neither Mr. Samuels nor any lobbyists working on behalf of the company discussed the possibility of a charitable donation with Mr. Rangel. The only contact was made in late 2007, a company spokesman said, when Mr. Immelt called to inform Mr. Rangel that the foundation was giving money to schools in his district.

But in 2008, when Mr. Rangel was criticized for using Congressional stationery to solicit donations for a City College of New York school being built in his honor, Mr. Rangel said he had appealed to G.E. executives to make the $30 million donation to New York City schools.

G.E. had nothing to do with the City College project, he said at a July 2008 news conference in Washington. “And I didn’t send them any letter,” Mr. Rangel said, adding that he “leaned on them to help us out in the city of New York as they have throughout the country. But my point there was that I do know that the C.E.O. there is connected with the foundation.”

In an interview this month, Mr. Rangel offered a different version of events — saying he didn’t remember ever discussing it with Mr. Immelt and was unaware of the foundation’s donation until the mayor’s office called him in June, before the announcement and after Mr. Rangel had dropped his opposition to the tax break.

Asked to explain the discrepancies between his accounts, Mr. Rangel replied, “I have no idea.”

Value to Americans?

While G.E.’s declining tax rates have bolstered profits and helped the company continue paying dividends to shareholders during the economic downturn, some tax experts question what taxpayers are getting in return. Since 2002, the company has eliminated a fifth of its work force in the United States while increasing overseas employment. In that time, G.E.’s accumulated offshore profits have risen to $92 billion from $15 billion.

“That G.E. can almost set its own tax rate shows how very much we need reform,” said Representative Lloyd Doggett, Democrat of Texas, who has proposed closing many corporate tax shelters. “Our tax system should encourage job creation and investment in America and end these tax incentives for exporting jobs and dodging responsibility for the cost of securing our country.”

As the Obama administration and leaders in Congress consider proposals to revamp the corporate tax code, G.E. is well prepared to defend its interests. The company spent $4.1 million on outside lobbyists last year, including four boutique firms that specialize in tax policy.

“We are a diverse company, so there are a lot of issues that the government considers, that Congress considers, that affect our shareholders,” said Gary Sheffer, a G.E. spokesman. “So we want to be sure our voice is heard.”

G.E.’s Strategies Let It Avoid Taxes Altogether, NYT, 24.10.2011,
http://www.nytimes.com/2011/03/25/business/economy/25tax.html

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