The 57,000 Page Tax Return

http://marginalrevolution.com/marginalrevolution/2011/11/the-57000-page-tax-return.html

by Stronico • 15 years ago

106 99 15 years ago

JfromSw2• 15 years ago

"Consider the resources that GE spends to lowers its tax bill... Indeed, a corporate tax system with a tax rate of zero could well be preferable as it would waste fewer resources and raise not much less revenue."

Or you could just pay your taxes, GE

namdnay2• 15 years ago

I got the same impression. And even on the government's side, surely the step this situation suggests is to close loopholes rather than lower taxes?

delinka• 15 years ago

I tire of this argument. They do. They pay taxes according to the laws of the land.

Are they being fiscally responsible by paying less to the tax experts than they'd pay in taxes? I don't know, but I'd suspect either those experts will always continue to justify their existence (e.g. "Yes, Mr. CEO, we've saved you oodles of money") or corporate boards and executives just prefer not to think about taxes and accounting and such and just keep some accountants and lawyers around anyway.

yummyfajitas9• 15 years ago

GE does pay their taxes. The issue is that they structure their business in a socially inefficient way in order to minimize their taxes. They do pay the taxes they owe.

I'll speculate that what you may really oppose is structuring transactions in order to avoid taxes. But then again, you may not.

Do you oppose employers providing health insurance, i.e. untaxed compensation? Do you oppose individuals buying a home when the mortgage interest tax deduction tips the scales in favor of home ownership? Or corporations switching to green energy sources when tax subsidies make it economical [1]?

[1] Incidentally, this is one of the bigger tax breaks GE used.

JfromSw2• 15 years ago

I'm sure they pay the taxes they owe and they do it within the legal framework they operate in, otherwise we would be reading a whole other article about corporate fraud.

Instead the article is about a company that paid zero in taxes on their profit thanks to "extraordinary use of tax breaks and clever accounting".

I'm not against any of the tax structures you mention, GE doesn't need the best tax experts in the world for those things. So even though I haven't read the 57,000 page tax return I am willing to guess that all of the tax breaks used where not of the same considerate nature as the ones you mention.

It just seems like the primary motivation is to avoid paying taxes, not switching to green energy or even pay health insurance. The article even mentions "inefficient ways that GE structures its businesses just to avoid paying taxes", which, if true, is a major indicator.

Of course I may be completely wrong, I don't know what the motivation is and why they seem to work so hard not to pay taxes on their profit.

bobbles• 15 years ago

I thought this whole story was debunked a while ago along the lines of GE bringing forward their losses from the previous tax year, which is why they paid no tax

TheFuture3• 15 years ago

That doesn't make for good class warfare rhetoric though. We're headed into an election year!

jfruh• 15 years ago

What would happen if corporate taxes were lowered to zero, but capital gains were taxed as ordinary income? Corporations are not people, etc., and maybe taxes should only be imposed when they actually enter a human being's possession.

buro9• 15 years ago

And in addition tax cash stock piles to help drive re-investment, research and growth.

The combination says: You'll be taxed individually if you withdraw it, or taxed as a company if you horde it. Why not invest it instead?

Which might lead to greater employment, or more innovation.

* This whole post was a 2-second thought, I'm pretty sure it's flawed, but it amuses me.

yock• 15 years ago

What constitutes a "cash stockpile?" Does this disincentivise saving? Is it even legal to tax funds without a transaction?

TheFuture3• 15 years ago

This idea that people/businesses "horde" cash is simply bizarre to me, yet I see it again and again in discussions about the economy.

Unless it's stacks of paper underneath their mattress, it's in a bank, essentially an investment, and is able to be lent out as capital.

namdnay2• 15 years ago

That seems the most logical solution to me. But I think corporate taxes are also aimed at "pushing" companies to invest/spend more of their revenue than they would if they could funnel all profits straight into accounts in the Cayman islands or wherever.

TheFuture3• 15 years ago

Yeah, I don't really understand taxing business at all. They create jobs, then don't create a tax burden (like say an apartment building full of families attending local school, yet the govt constantly subsidizes building apartments). Why would you tax an entity that enables citizens to earn money and pay their taxes?

A business profit isn't profitable to anyone until it is distributed to employees or shareholders, at which point it is taxed again.

smokinn2• 15 years ago

Businesses don't create a tax burden?

Businesses use the country's infrastructure just as much as the citizens. They want police so they don't get robbed, they want roads and a post office, they want electricity for their buildings and sewers and all the other stuff taxes pay for.

mmcconnell1618• 15 years ago

One problem. Let's say I own a corporation and the corporation decides to use it's profits to purchase a G5 Jet, a mansion, a fleet of limos, an entertaining budget, etc. I'm essentially going to live like a king tax free. While I wouldn't technically "own" the items I would benefit from them. How can you regulate benefit? Where do you draw the line as a costs of doing business and a direct benefit to the CEO?

yummyfajitas9• 15 years ago

As of 1986 (in the US), such things are taxed as compensation.

Before 1986, most compensation to corporate executives was given out in such forms. In many other countries, executive wages are lower and the difference is made up with non-wage compensation such as what you describe.

Incidentally, this change in tax law created the biggest spike ever in (measured) income inequality: http://www.scottwinship.com/1/post/2011/03/what-would-it-mea...

leot5• 15 years ago

Well, then just Tax Wealth (and set cap gains rates to 0% while you're at it).

If the limos and G5 jet that your company bought were inefficient assets, then as an owner of the company you would still have to pay for them but your return on investment would be decreased, penalizing you for this poor allocation of resources.

Symmetry3• 15 years ago

I like this in principle a lot, but capital gains tend to be more lumpy than normal income so this interacts badly with our current progressive income tax structure. Better to go to a consumption tax if we're going to do this.

jasonkolb• 15 years ago

The only way to prevent this is to move to a sales tax model. Anything else can be gamed ad nauseum as GE & co have so helpfully proved. With today's tax system, the amount of taxes you pay are inversely proportional to the amount of complexity you're willing to deal with.

And since corporations are legally people, you're barking up the wrong tree with conversations about not taxing businesses. Sales tax it, period. Cannot be circumvented.

smokinn2• 15 years ago

Sales tax only puts the burden disproportionally on the poor.

If you're making millions of dollars a year you're probably only spending a small fraction of it and if there's only sales tax you pay tax on a percentage of what you spent. So let's say you made 30 million dollars and spent 8 and say the sales tax rate is 15%. In this case you paid 1.2MM in tax for a marginal tax rate of 4%.

On the other hand if your income is 15k you're probably spending it all or very close. In which case your marginal tax rate is 15%.

Not all that fair I'd say.

Personally I like the progressive income tax method. I just think capital gains should be taxed as income rather than at a flat 13% and no special rules for corporations either. If they want to be people they can be taxed like people. If they want to be different then we can just get rid of corporate personhood. I doubt they'd like that much.

protomyth5• 15 years ago

You can actually fix a lot of the sales tax issues by excluding certain categories (e.g. unprepared food, clothing).

I am more a flat rate tax person with a base exclusion per tax payer (i.e. your kid working a summer job files for themselves) and only one tax line (the government can divide it between SS, FICA, etc). As a curiosity, I was trying to figure out what would actually be revenue neutral. I think somewhere in $20K deducible then 17 - 20% flat rate after that. It is really not that easy to get all the information needed to play with various scenarios.

yummyfajitas9• 15 years ago

If they want to be different then we can just get rid of corporate personhood.

Ok, lets do that. A group of people working in a building with the word "GE" on it just violated a contract with you. Who do you sue?

With corporate personhood, you sue the legal person GE. Your responsibility ends here - it's up to parties within the entity GE to figure out who goes to court, and the court can seize any GE assets if GE refuses to pay (assuming you win).

That's all corporate personhood is - a convenient legal interface. I'm not sure why you believe having this particular interface necessitates double taxation of income earned by corporate owners. Could you explain?

schwit• 15 years ago

This can be fixed in at least 2 simple ways.

1. Don't tax the essentials. Milk, fruits, vegetables, lean meats, non-luxury cloths. Don't tax the first $50 of a pair of shoes. Don't tax the first $15k of a car.

2. Determine the average monthly sales tax paid for by a person at the poverty line. Have the government send a monthly check for that amount, minus 10%, to every citizen. Everyone should pay some tax.

rick8882• 15 years ago

"Not all that fair I'd say."

If you have a more expensive house, you are paying a much higher tax rate and not actually getting much more out of the money you are putting into the system.

If their kids are in private schools, they are also paying double or triple what the average person is paying, yet not actually using it.

There are also many taxes wealthy people pay for but never actually use.

so it's fair. Also, whatever happened to "paying your fair share"? This phrase seems to be going around a lot, yet it only seems to involve people at a certain income level.

I just wish people would be a little more honest.

yummyfajitas9• 15 years ago

Many people oppose ideas like this because it is less progressive (w.r.t. income) than an income tax, and they hold an apriori belief that taxation should be proportional to income. This is because consumption rises sublinearly with income, and people at the bottom actually tend to consume more than they earn. In mathematical terms, dConsumption/dIncome < 1.

In practical terms, this means that most of Steve Job's wealth is not stuff he can consume, but rather productive capacity that he directs.

In fact, many people at the bottom of the income scales actually consume considerably more than they earn, so a sales tax would be a big tax hike for them.

Raw data: ftp://ftp.bls.gov/pub/special.requests/ce/standard/2009/income.txt

This blog post has a graph of consumption vs income: http://crazybear.posterous.com/why-the-poor-dont-work

patio112• 15 years ago

Cannot be circumvented.

That is not the experience of many nations which have sales taxes, for example, the United States. Among many favored ways to circumvent it are underreporting, effecting the transaction in a jurisdiction which has a favorable sales tax (New York every so often prosecutes people for the crime of buying art in Connecticut), classifying the sale as something which has favorable tax treatment, etc etc. I've heard hilarious accounts of merchandising decisions by which a handbag was only sold in combination with a scarf such that the transaction became clothing + accessory (taxed at LOW%) rather than luxury goods (taxed at HIGH%), despite neither the buyer nor seller benefiting from the bundling of the scarf.

rmc2• 15 years ago

classifying the sale as something which has favorable tax treatment

The UK, with a VAT/sales tax rate of about 15% has similar cases. A popular biscuit (Jaffa Cakes) are legally classed as a cake (and hence have lower VAT rate), as opposed to a biscuit that have higher VAT rates. cf. http://en.wikipedia.org/wiki/Jaffa_Cakes

GFischer• 15 years ago

Yes, it can be circunvented, here in Uruguay and neighbouring countries we've had sales tax for decades, and there are more than enough loopholes to circumvent it.

Heck, even local governments evade sales tax (spanish link saying that the governor of Misiones teaches how to evade sales tax):

http://tn.com.ar/politica/00054267/un-gobernador-ensena-como...

smackfu• 15 years ago

The complexity is because the government uses the tax system to motivate behavior. There isn't a mortgage tax deduction just for the heck of it, it is there to encourage people to own houses. There are long term and short term capital gains because the government is encouraging people to hold investments for a longer time.

Any "simple" tax gives up these governmental incentives.

rayiner• 15 years ago

A lot of a tax return is just huge reams of supporting documentation (accountings of expenditures, etc). Also, keep in mind the scale of the endeavor. $150bn in revenus accounted for in 57,000 pages. I.e. 1 page of documentation for $2.63m in revenue. How much did it cost to generate and analyze? $10m? $50m? At $50m that's an overhead of 0.03%, for an inevitable part of running a modern society. Seems way less inefficient when you put it in context.

tryitnow• 15 years ago

That's a very good point. Once again the "headline" about a "huge tax return" distracts information away from the real problem, which is that US nominal corporate rates are too high and the effective rates are too low.

The real problem is not necessarily all the work that goes into filing the tax return, but rather the influence peddling that leads to policies that misallocate* scarce resources to politically favorable projects.

*this is just my bias, but I am willing to bet it's the consensus among economists that firms allocate private resources more effectively than politicians when those politicians are largely influenced by the firms themselves.

fleitz• 15 years ago

The capital allocation is smart for an individual company given the political environment, but the political environment is silly. The current system of politics and influence is likely a Nash equilibrium. In the current environment no one has anything to gain by unilaterally changing their strategy, and thus hiring lobbying firms is a good allocation of capital.

brc2• 15 years ago

Yes, but the point missing is that those 57,000 pages went into a tax return that produced no revenue for the government.

That's good money spent by the company, but terrible for society as a whole.

If you're going to make it so large companies pay no tax, just set them a 0% tax rate and turn the lawyers and accountants towards more productive uses.

jellicle2• 15 years ago

This blogger is, as usual, arguing that the corporate tax code is somehow too complex.

Rather what is happening is that GE is intentionally gaming the system. Most of those 57,000 pages are self-inflicted. If GE refrained from tax-dodging activity and only undertook regular business activity, their tax return would be much, much thinner.

http://money.cnn.com/2010/04/16/news/companies/ge_7000_tax_r...

A few lines of patching to the tax code to require that income earned in the U.S. be taxed in the U.S. would fix the majority of the problem. Literally a couple of sentences.

Anderkent• 15 years ago

Or, you know, make the tax code simpler so that there is less room to game the system?

Vivtek• 15 years ago

With the result being that GE would have to pay billions in taxes and thus have less money to bribe Congressmen.

three142• 15 years ago

Although there are clear problems with the tax code, people forget that some of the complexity is there because that's what most people actually want.

People want a tax deduction for charity.

People want to tax corporate profits, not revenues - so you need to figure out how much is actually profit. Is R&D a real expense? Can we just sink all our profits into R&D and say we have no profits? But you can't just tax all R&D as if it was profit that the company is hiding or software companies would go out of business. What about when you have some complicated schedule of when a client pays you - do you record the revenue when you earn the money or when you get it?

Many people want a tax deduction for a mortgage (whether or not this makes any sense).

Like software, complexity gives room for hacks. You can't hack into a hammer, but you can hack into a computer. If you want a complex tax code, you don't simply declare "Simplify!" It's like "I'm going back to my typewriter to avoid viruses." There are more realistic ways to deal with the problem, and like computer security, it takes real time and effort.

cynicalkane• 15 years ago

First, the definition of 'corporate income' is soft and fuzzy, and it's very hard to translate into a technical definition useful for making tax policies. Second, the US has tax incentives and the idea behind them is that you're supposed to take them. The system is designed to be gamed, it wants to be gamed, except when certain corporations game it in a certain way then suddenly there's lots of outrage without anyone really asking why the tax system was intentionally set up to work that way.

Instead the outrage usually ends with pitting on the blame on the congress/corporate lobbying system (which is real but overrated, and just an amplifier of the problem not a source), or the assertion that all corporations should be demanded to follow some ill-defined moral code that would arbitrarily please the speaker.

three142• 15 years ago

The tax code already requires that income tax earned in the U.S. be taxed in the U.S. My father's job essentially involves making up the numbers. Why do I say make up numbers? Often, corporations are multinational. Some part of the corporation makes a sale, but parts in two countries did the work. The rule is that the sale is allocated between the two parts as if they were two companies, and each part pays where it's located. But how much would the part that made the sale pay the other part if they really were two companies? Who knows? So they hire people to make up convincing numbers; they find other transactions between companies that actually are separate to compare to. As you might imagine, this leaves tons of wiggle room.

In short, in this case, the reasonable thing is actually the law, but it gives companies plenty of room to take advantage.

yummyfajitas9• 15 years ago

If GE refrained from tax-dodging activity...

GE should stop giving employees health insurance (untaxed compensation) and producing green energy (which nets it various tax subsidies).

Is that what you had in mind?

jellicle2• 15 years ago

Those aren't 1/1000th of GE's tax dodging and you know it.

brc2• 15 years ago

Yes, they should stop getting subsidised for 'green energy'.

Energy production shouldn't be subsidised, period. If an energy source - any energy source - cannot stand on it's own two feet, shelve it.

jonhendry• 15 years ago

Given the vast size and complexity of GE's business, I don't really think 57,000 pages is unreasonable. Who knows how many hundreds of sub-units they might have, foreign entities, etc.

At $150 billion of revenue, that's $2,631,578.95 of revenue per page. Which is better than most tax filers have to deal with.

Especially when, as a result, they save billions of dollars in tax payments.

drstrangevibes• 15 years ago

possibly one of the best hacks of 2011

bfe• 15 years ago

Ultimately, economic growth comes from growth in productivity, i.e. making stuff people want. We seem to be riding an ever-increasing complexity of arbitrary systems, including tax laws, financial regulations, healthcare regulations, etc. that is drawing an ever greater share of the time and talents of the well-educated workforce into the world's largest game of Dungeons & Dragons against each other, and not making anything that anyone wants.

saturdayplace• 15 years ago

I've wondered a lot lately whether our bureaucracy might someday collapse under its own weight. Given the scale of many of our problems, and seeming incapacity of our bureaucracy to solve them, it seems like eventually people might come to the conclusion that the only solution is to throw out the bureaucracy and start over.

nekojima• 15 years ago

I'd hate to imagine the size of the bureaucracy required to manage THAT change, much less the mission creep, cascading timelines & massive cost over-runs. :-/

zeteo• 15 years ago

No bureaucracy collapses under its own weight. What happens, when rules become too complex, is that they start being enforced arbitrarily, according to the discretion of the enforcers. The system still derives its legitimacy from the supposed impartiality of written rules, but in fact becomes an ad-hoc collection of petty fiefdoms in a loose hierarchy.

bravura• 15 years ago

The bureaucracy is expanding to meet the needs of an expanding bureaucracy. -Oscar Wilde

ppereira4• 15 years ago

I have heard that the legal system of the Roman empire became highly technical and arcane just before its collapse.

jeffreymcmanus2• 15 years ago

We need an alternative minimum tax for corporations. If this is OK for individuals it should be just fine for billion-dollar businesses.

radog• 15 years ago

There is a corporate AMT.

jeffreymcmanus2• 15 years ago

Then why didn't GE pay it? Somebody's got their definition of 'minimum' screwed up.

mcantor• 15 years ago

This is one of the most sublimely hilarious and soul-crushing things I've read recently. It's like an Onion article.

Cieplak2• 15 years ago

Anyone know where to find this 57,000 page PDF?

dfc3• 15 years ago

Tax filings are not public information.

Cieplak2• 15 years ago

Thank you, I wasn't sure if they were

Pythondj• 15 years ago

If you'd really like to dive deep into GE's filing try taking at look at it as a tagged XML file using XBRL at http://www.sec.gov/cgi-bin/viewer?action=view&cik=40554&...

You can also download the data as an Excel Spreadsheet - they may obfuscate as much as they want - but if you start leveraging the XBRL tags - you can automate search for that incriminating needle in a haystack...

This is what the SEC auditors are doing these days1

dfc3• 15 years ago

You realize that is a 10-Q and not a tax return? IRS and SEC are separate institutions. There is a big difference between the types of financial reporting for stocks versus federal income tax.

dfc3• 15 years ago

What incriminating needle? Nobody has alleged any criminal conduct. Mr. Samuels is a smart man, that's not against the law.

The 57,000 Page Tax Return

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