GE 'zero' US tax furor reignites calls for reform

Revelations that General Electric paid no US taxes last year, despite bagging a $14 billion profit, have reignited debate in Washington about tightening up corporate levies.

© AFP/Getty Images Scott Olson

AFP

WASHINGTON (AFP) - Revelations that General Electric paid no US taxes last year, despite bagging a $14 billion profit, have reignited debate in Washington about tightening up corporate levies.

No one, it seems, is very fond of the US corporate tax system.

Businesses bemoan the 35 percent minimum rate that is among the highest in the world, and taxpayers are furious at how easily big firms seem to pay much less.

But in recent months the issue has been overshadowed by multiple global crises and a fierce argument over government spending.


It resurfaced with a bang last week, when it emerged that manufacturing titan GE paid no taxes to the US government in 2010.

"GE did not pay US federal taxes last year because we did not owe any," spokeswoman Anne Eisele told AFP, rejecting suggestions the United States' fourth largest company was gaming the system.

But as millions of Americans struggle to make ends meet, and the Federal government fails spectacularly to do the same, that disclosure has caused consternation.

"The wealthiest Americans and most profitable corporations must do their share to help bring down our record-breaking deficit," Democrat-allied Senator Bernie Sanders said Sunday.

Supporters of reform, from big business to the White House, are re-polishing their arguments.

The White House argues an overhaul could help bring down unemployment. Big business agrees a lower rate would aid growth.

Despite this broad coalition, experts say the prospect of a quick deal is illusory.

They argue the government has few options if it wants to substantially lower the minimum rate and not add to the deficit: Expand the number of people paying corporate taxes, or get more revenue.

"If you want to get the corporate tax rate down from 35 to 28 percent -- that is a 20 percent cut in the tax rate -- you have to have increase the tax base by 20 percent, or offset it," said Alan Auerbach, an economics professor at the University of California, Berkeley.

"That is a big increase."

President Barack Obama has leaned heavily toward closing loopholes, arguing that "revenue neutral" reform must spell an end to some antiquated, but much-loved, tax breaks.

"I don't think there is anyway to do this without winners and losers," said Seth Hanlon, the director of fiscal reform at the left-leaning Center for American Progress.

Cutting roughly four billion dollars a year in oil and gas sector subsidies are a regularly cited example of cuts, so too is tightening manufacturing deductions that are used well beyond the sector.

But the most lucrative target for the Internal Revenue Service may be cracking down on overseas tax shelters.

Under current rules US firms pay tax on foreign subsidiaries only when profits are sent back to the United States.

© AFP/File Nicholas Kamm

Treating subsidiaries as domestic businesses for tax purposes could spell vastly higher tax bills for firms like GE.

While the company says much of this year's tax savings come from losses at GE Capital, even before other write-offs its effective US tax rate was just over seven percent -- thanks in part to some profits being kept overseas.

"If you just look at our statutory rate, it's high," said Annette Nellen, an accounting professor at San Jose State University, but "the effective tax rate for many companies is a lot lower."

Outrage or not, tough bargains will need to be reached if a reform deal is to be reached.

"It is going to depend on who all steps forward to say 'oh no, no, we can't get rid of the research credit, we can't get rid of that work opportunity tax credit,'" said Nellen.

"If you get enough people stepping forward to say you can't get rid of this stuff, then Congress I think will just step back and say, we'll leave the rate where it is."

© AFP -- Published at Activist Post with license

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BBC World Service to sign funding deal with US state department

Customers in an internet cafe in Changzhi, China. The US government's investment is intended to help people circumnavigate state censorship. Photograph: Reuters

Low six-figure investment will aim to help combat censorship of TV and internet services in countries including Iran and China

The BBC World Service is to receive a "significant" sum of money from the US government to help combat the blocking of TV and internetservices in countries including Iran and China.

In what the BBC said is the first deal of its kind, an agreement is expected to be signed later this month that will see US state department money – understood to be a low six-figure sum – given to the World Service to invest in developing anti-jamming technology and software.

The funding is also expected to be used to educate people in countries with state censorship in how to circumnavigate the blocking of internet and TV services.

It is understood the US government has decided the reach of the World Service is such that it makes investment worthwhile.

The US government money comes as the World Service faces a 16% cut in its annual grant from the Foreign Office – a £46m reduction in its £236.7m budget over three years that will lead to about 650 job cuts. The money will be channelled through the World Service's charitable arm, the World Service Trust.

The deal, which is expected to be formally announced on International Press Freedom Day, 3 May, follows an increase in incidents of interference with World Service output across the globe, according to its controller of strategy and business, Jim Egan.

BBC Persian television, which launched in early 2009 and airs in Iran and its neighbouring countries, has experienced numerous instances of jamming. The BBC Arabic TV news service has also been jammed in recent weeks across various parts of north Africa during the recent uprisings in Egypt and Libya.

"Governments who have an interest in denying people information particularly at times of tension and upheaval are keen to do this and it is a particular problem now," said Egan.

Another area in which the BBC World Service is expected to use the US money is continuing its development of early warning software.

This will allow it to detect jamming sooner than it does currently where it relies on reports from users on the ground.

"Software like this helps monitor dips in traffic which act as an early warning of jamming, and it can be more effective than relying on people contacting us and telling us they cannot access the services," said Egan.

The BBC also expects to use state department money to help combat internet censorship by establishing proxy servers that give the impression a computer located in one country is in fact operating in another, thereby circumnavigating attempts by repressive governments to block websites.

"China has become quite expert at blocking websites and one could say it has become something of an export industry for them – a lot of countries are keen to follow suit," said Egan.

"We have evidence of Libya and Egypt blocking the internet and satellite signals in recent weeks."

Egan added that the battle against jamming is likely to be an ongoing one because repressive countries are likely to develop methods to counter any anti-censorship technology that is developed.

"It is a bit of a game of cat and mouse," said a BBC source.

Source:  http://www.guardian.co.uk/media/2011/mar/20/bbc-world-service-us-funding?CMP=twt_fd

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Number of the Week: Companies’ Cash Hoard Grows

Mark Whitehouse
Wall Street Journal

$1.9 trillion: Corporate America’s cash

U.S. companies’ cash hoard keeps getting bigger, a trend both good and troubling.

After hitting new highs in five of the last six quarters, nonfinancial corporations’ cash and other liquid assets reached $1.9 trillion at the end of 2010, according to the Federal Reserve. That’s 7% of all their assets, the highest level since 1963.

On the bright side, the cash pile reflects the resilience of America’s companies and capital markets. Thanks in part to improved resource-management systems, executives have been able to act with lightning speed, slashing costs during the recession and hiring only as much as they need during the recovery — tactics that have generated record profits, if not jobs. Dynamic bond markets have allowed big companies to raise vast amounts of money even as banks have pulled back on lending. That has helped the U.S. avoid the kind of bankruptcy epidemic many had expected.

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