The President's Counsel on Jobs and Competitiveness ... and Tax Avoidance
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The NY Times report by David Kocieniewski on GE’s aggressive tax strategies under the leadership of John Samuels, a former Treasury Department tax lawyer, which enabled the company to pay no income taxes to Uncle Sam on their $5.1 billion of US-based income has many justifiably outraged.
Some, including GE on their website, are saying what GE is doing is legal so they are doing their job for shareholders. No one at GE made “the system.” They just compete in it.
My response to the article came after a long walk on a sunny beach where my vacationing mind was busy pondering our sorry state of affairs. Maybe I got too much sun! But here goes:
After enduring Bush 2 for eight difficult years, the people elected their first black President on a slogan of “Hope.” Yes we did.
The president took over amidst a frightening financial crash that brought fear into the eyes of our Treasury Secretary, the former tough guy head of Goldman Sachs. Yes it did.
The Treasury Secretary pleaded for the system to be saved no matter the cost. And it was.
One of the “banks” Uncle Sam bailed out was General Electric. Despite restrictions on the comingling of banking and commerce dating back to the post depression period, GE has long operated a massive financing business by the name of GE Capital. Yes it has.
Well it turns out that one of the benefits of running a massive finance business alongside the largest industrial empire in the United States is that it allows the most aggressive tax department on the planet to avoid paying much in the way of taxes to Uncle Sam by shifting profits from manufacturing at home into the financing and leasing of equipment which is booked offshore. Yes they clearly do.
We also learn in the NY Times article on GE’s tax business that the same bailed out GE donated $30 million to New York City Schools, including $11 million to the honorable Congressman Rangel’s District in the Bronx, bless GE, one month after he, as Chairman of the House Ways and Means Committee, agreed to extend a critical tax shelter Congress was threatening to let expire, worth unknown billions to GE over time. According to the NY Times, this is true.
The honorable Congressman Rangel is the same Congressman who was censured by Congress last year for soliciting donations from corporations and executives with business before his committee. Yes you know it’s true.
Less known is the fact that during the financial crisis when broker dealers like Goldman Sachs and Morgan Stanley (large speculators in physical commodities such as oil and copper, but also electricity and the wheat that we eat) pleaded for access to the Fed discount window to avoid runs on their firms similar to Lehman and Bear Stearns. The Fed waived a provision in the Bank Holding Company Act that, with great foresight, restricted banks from operating in the physical commodities business. Yes it did.
Similar relief must have been granted to JPMorgan when it acquired Bear Stearns which operated a major electric power generating and trading business. You can now buy electricity from your corner bank—yes you can. But that same bank, which is too big to fail, and has long complained that GE is an unregulated bank with an unfair advantage, can also use its expertise and market dominance in derivatives resulting from merger after merger the Fed had to approve to manipulate the price you pay if they so choose. Oh yes they can.
You may be surprised to know that the woman now running JPMorgan’s Commodities business is the same woman that virtually invented Credit Default Swaps at JPMorgan over a decade ago. Yes it’s true.
But the truth is she’s an honest and talented professional, who was as surprised as anyone at the abuse and destruction her earlier invention would lead to once in the hands of reckless sociopaths. Trust me it’s true.
Mr. Dodd and Mr. Frank meanwhile penned some language into a bill 2,000 pages in all, with some good provisions no doubt, but also with pages of derivatives legislation language literally drafted by the bank lobbyists themselves, and persuaded our young President that it would pass as “financial reform.” And it did.
But it's not.
The economic crisis that followed the bank-induced financial collapse made our young President, with no one in his Administration from the big business community, an easy target of the conservative business class. Suddenly the economic fallout from the financial collapse that happened on Bush 2's watch, combined with the 10th anniversary of the war for who knows what in Afghanistan (and various scenes of apocalypse in our daily news), has sullied our notion of “Hope.” Oh yes it has.
The economy is sick, and conservative “thought leaders” such as Sean Hannity, Larry Kudlow, Donal Trump, and Sarah Palin convince the President he needs to be more friendly to business. This is the same President that came to the rescue of Citibank (three times), JPMorgan, Bank of America, Goldman Sachs, Morgan Stanley, AIG, Fannie Mae, Freddie Mac, General Motors, Chrysler, General Electric, and on and on and on, with virtually no repercussions against these businesses and very few against their leaders. No there were not.
So our young President turns to none other than Jeff Immelt, the CEO of the big and powerful General Electric Corporation, to take charge of the “President’s Council on Jobs and Competitiveness.” The same Mr. Immelt who must have known about the school deal in the Bronx with Charlie Rangel—he knows how to compete. In response to the article, GE states that the GE Foundation is a separate legal entity, with an entirely independent decision-making process, from the the one that disperses the company’s political contributions. That's what they said.
Mr Immelt’s GE is closely associated with a multitude of outsourced jobs from American soil, and thousands of further job losses from “restructurings” resulting from its acquisition-driven business model enabled by its subsidized cost of capital during the Jack Welch years as a “too big to fail bank.” Yes, Mr. Immelt, like any corporate consolidator, knows a lot about jobs. It is also the same GE that has yet to clean up the Hudson River it so horribly fouled with toxic chemicals decades ago, and now must contemplate the damage its nuclear reactor is wreaking on Japan of all countries. But competitive Mr. Immelt is good at his game, I’m sure, and a comforting macho figure for our uncertain President to have at his side when he negotiates the future of capitalism with Premier Hu and Prime Minister Putin. Yes indeed he is.
So the “competitive system” carries on, unless we have the good sense, courage, and will to change it.
I believe our destiny lies in our free will, a promising opportunity and profound responsibility. Like you and me, Mr. Immelt and Mr. Samuels are free men. They have no doubt provided nicely for their families. They are free to choose how to deploy their time and skills, inside GE or not. Yes they can.
Josh Weston, former CEO of multibillion dollar Automatic Data Processing, sent an email to a group of influential business and finance leaders in response to the GE tax article. In it he demonstrates the courage and integrity we need from our business and financial elite who have all benefited so greatly from “the system.” Josh writes:
For years, I’ve claimed that America’s biggest national deficit is its’ “integrity deficit”, which, in turn spurs our other deficits.
Today’s NYTimes and radio reports describe how GE has legally paid zero income tax in 2010, and will even get a refund, on its $14+ billion of reported profits. This has happened in prior years, and to many other big companies like Microsoft. GE has the biggest tax department in the U.S., populated by ex-IRS and Treasury officials, buttressed by hundreds of lobbyists and millions in PAC $ to congressmen. In theory, wouldn’t it be fair to have a minimum alternative income tax for corporations, equal to 15% of the income they report to their shareholders?
Not far behind them are the biggest hedge fund and private equity guys who have succeeded in getting their income to be defined as capital gains (i.e., a 15% tax bracket on their earnings).
Individual middle class taxpayers (who have no clout) are the fall guys, while sanctimonious, misleading noise streams out of Congress and its wealthiest supporters.
Am I wrong? If not, shouldn’t some loud megaphones be promoting the truth?
In closing, I share with Mr. Immelt and Mr. Samuels of General Electric the same words I shared with Mr. Blankfein of Goldman Sachs in a letter I wrote to him in 2009:
It is not what a lawyer tells me I may do, but what humanity, reason and justice tell me I ought to do."
- Edmund Burke, statesman, conservative philosopher
–John Fullerton is the founder and president of the Capital Institute. He is also the principal of Level 3 Capital Advisors, LLC, an investment firm focused on high impact sustainable private investments.
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