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Certain companies make natural targets for people who believe that multinational conglomerates game the United States tax system while the proverbial little guy can’t catch a break
That’s why Rep. Marcy Kaptur brought up the names of certain companies while explaining her demand for fairness as Congress debated spending cuts.
"I’m willing to support a package that is balanced," Kaptur, a Toledo Democrat, said during an April 6 interview on "On Point," a public radio show, when host Tom Ashbrook, asked what level of federal spending cuts and policy compromises she’d accept.
Pointing to what she thinks is an imbalance, she cited the case of General Electric, "which hasn't really created any jobs in this country, doesn't pay any taxes and they're making historic profits."
Her comments stood out because General Electric’s federal income taxes have been a matter of dispute. Did the Connecticut-based company, with $14.2 billion in earnings, avoid paying any U.S. corporate income taxes for 2010? A New York Times examination March 24 said so, noting in detail the tax-avoidance lengths -- all legal -- to which the company goes. Kaptur’s communications director, Steve Fought, says that Kaptur was referring to that article when making her comment.
Yet that article has come under attack, and not just from GE. Another investigation, by the nonprofit journalism organization ProPublica and co-published with Fortune magazine, says the Times went too far. Due to various deductions, credits and an ace tax accounting team, GE got a $3.2 billion "tax benefit," both investigations found. But "tax benefit" is a financial term that is not the same as a tax refund or negative tax balance.
So does GE "not pay any taxes," as Kaptur said?
GE pays other kinds of taxes. But we believe that those following this issue -- especially public radio listeners -- knew that Kaptur meant income taxes. She was using a kind of shorthand that’s well known in public policy circles when discussing corporations’ avoidance and the way some shelter profits overseas.
What is not disputed is that heavy losses from its financial unit, GE Capital, played a big role in helping GE avoid all U.S. income taxes for calendar year 2009. Forbes reported on this this last year and GE told us in an e-mail that "the total company lost money on its U.S. operations" in 2009.
But Forbes suggests the Times was wrong about GE’s taxes for 2010. The Columbia Journalism Review sides with the Times, however. And Henry Blodget, a financial blogger and analyst who runs Business Insider, concludes that "GE is still trying to find a way, any way, to talk its way out of this."
Our own discussions by phone and e-mail with GE spokeswoman Anne Eisele may illustrate why this is so hard to pin down.
Eisele said in an e-mail: "We will file our 2010 tax returns by September. We expect to have a small, positive U.S. federal income tax liability." The figures reported elsewhere are based on pre-payments and projections.
But that’s not quite the same as what GE said in a recent web statement: "GE paid significant U.S. income tax in 2010 and in total from 2006-2010." And AFP, an international wire service, reported that when it inquired about the dispute, Eisele replied in an e-mail saying, "GE did not pay U.S. federal taxes last year because we did not owe any."
Add to that confusion something Eisele told us: "In 2010, GE paid significant federal income taxes for prior years." Presumably, that would mean GE paid taxes during 2010, but not for the 2010 tax year -- and presumably not for 2009 because GE reported that it lost money on U.S. operations that year.
GE is not legally obligated to say what it actually paid or didn’t. You could put GE’s statements together like a jigsaw puzzle and the pieces seem to fit, but the statements are nuanced, qualified and at times legalistic.
Given all this, we are going to hold this part of Kaptur’s claim in reserve. We’ll come back to it if the picture gets clearer.
But what about Kaptur’s claim that GE "hasn’t really created any jobs in this country?"
We turned to what we thought would be a reliable measure: GE’s annual 10-K filing, a self-reported, audited examination of its performance that it turns in to the Securities and Exchange Commission. We also looked at some of its annual reports to investors.
In 2010, GE had 133,000 employees in the United States. In 2004, it had 165,000. The declines occurred every year, totaling 32,000 jobs lost in six years. If you went back even further you’d see more domestic job shedding.
Meantime, the company’s foreign employment has shot upward. In 1996, GE had 84,000 workers in foreign countries. The number reached 172,000 by 2007 before dipping to 154,000 in 2010. GE itself has said it: There were growth opportunities abroad.
Thousands of these job losses were the result of layoffs. Eisele attributed about 4,000 of them to the financial crisis and its effect on GE Capital. But she also said that since the beginning of 2009, "GE has announced plans to create nearly 7,000 new U.S. manufacturing jobs through 2013." She provided us with a list of those announcements, which listed 6,465 new jobs with GE plus others in support of a GE-related smart energy project. Furthermore, "GE's three largest industrial businesses (Energy, Aviation, and Healthcare) grew U.S. jobs 31% over the decade," Eisele said.
But, even with these upcoming gains, GE will not employ as many people in the United States as it did in 2008. The expansion would create a blip, not a total comeback.
Yet there is more to consider, Eisele said. About 33,000 jobs since 2004 are no longer on GE’s books because their divisions were sold or spun off, she said. "Those jobs weren't cut; they moved to other companies," she said.
Add those 33,000 people back into the equation and the number of workers rises to 166,000.
This math works in GE’s favor, because in 2001, GE reported 158,000 workers in the United States, and 165,000 in 2002. It gives credence to a GE assertion -- that if you factored in the dispositions, "GE's U.S. employment has increased from 2001 to 2010."
But wait: It you decided to compare 2000 with 2010 -- going back just a year further -- a funny thing happens: GE winds up showing a loss again, even if you add those dispositions back in. We wanted a more precise accounting of job spin-offs by year so we could do a more exacting comparison, but Eisele said she did not have "that level of granularity" available.
So how do we gauge Kaptur’s claim that General Electric "hasn’t really created any jobs in this country?"
Using GE’s own filings to shareholders, Kaptur is correct. Backing out some of those losses because employees simply moved from GE’s books to successor companies’, the answer is: GE has mostly held steady since 2001 -- but not since 2000 or 1999. Getting precision beyond GE’s SEC filings requires, well, granularity.
Kaptur made one more claim about GE -- that "they’re making historic profits."
That’s false. GE reported $14.2 billion in continuing operations before taxes in 2010. But it was significantly higher in 2008, at $19.8 billion, and it was $27.52 billion in 2007.
So, on the first part of Kaptur’s claim, the jury is still out.
On the second part, GE’s self-reported numbers back her up. GE provided rough numbers that could point to a different conclusion, but it depends on the years selected. Short of much better detail -- if the company wants to go granular, we are here awaiting -- we go with the precise numbers the company reported to the SEC.
But Kaptur is wrong on the third part of her claim. While $14.2 billion is a lot of money, it set no GE record.
When arrows compete for opposite poles, the Truth-O-Meter turns to the only place it can: Half True.
"On Point," WBUR radio and played on other public radio stations, April 6, 2011. (Kaptur comments are around 15:00)
The New York Times, "GE’s strategies let it avoid taxes altogether," March 24, 2011
General Electric Corp., "GE and taxes" statement, updated March 28, 2011
Columbia Journalism Review, "GE flubs a pushback against the New York Times," March 31, 2011
ProPublica, "Setting the record straight on GE’s taxes," April 4, 2011
Columbia Journalism review, "ProPublica and Fortune’s unhelpful post on GE’s taxes," April 7, 2011
Forbes, "What the top U.S. companies pay in taxes," May 13, 2011
Henry Blodget, Business Insider, "Who is full of crap? GE., The New York Times, and the hazards of ‘tweeting the record straight,’ " March 28, 2011, with updates at bottom
Forbes, "What the top U.S. companies pay in taxes," April 1, 2010
AFP, "GE ‘zero’ tax furor reignites calls for reform,"March 28, 2011
E-mail and telephone conversations with Anne Eisele, director, financial communications, General Electric, April 11-13, 2011
E-mail and telephone conversations with Steve Fought, communications director for U.S. Rep. Marcy Kaptur, April 11-13, 2011
GE annual reports
GE annual 10-K filings
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