Thursday, March 31, 2011

GE's tax bill - storyline vs. reality

There's been a big fuss in the left blogosphere, and some parts of the mainstream press (though strangely, not on NBC News1) this week over the fact that GE, after exceptions and credits and incentives and what-not, paid $0 in nominal federal taxes last year. Here is the fundamental fact that this discussion ignores:
Corporations do not pay taxes. People do.
Every tax is paid by a person. It might be collected from the corporation by the government, but it is paid by an individual person.
Corporations do not pay taxes. People do.
Taxes are paid by shareholders in reduced dividends or lower capital gains. Or the are paid by employees in reduced wages or lost jobs. Or they are paid by consumers in increased cost. Or they are paid by sub-contractors and suppliers in lost business. But in the end, the tax burden is not borne by a corporation. It is borne by a person.
Corporations do not pay taxes. People do.
Corporations can be tax collectors for the state, but the tax payers are individual people, and it is pointless to discuss corporate taxes without recognizing and acknowledging that. It is the single most relevant factor in any discussion of corporate tax rates.
Corporations do not pay taxes. People do.
Any discussion of "corporate taxes" which does not start with that understanding is a discussion rooted in fantasy rather than reality.

Does that mean that GE's nominal rate of 0% is fair or right? No. There are many other corporations whose shareholders and employees and customers paid more in taxes than GE's did, and the crony capitalism which is going on between big businesses and the government with regards to the tax code is an abomination, this time to the benefit of GE's stakeholders, employees and customers. But it's pointless, useless and counter-productive to a) pretend that we're "shocked - shocked!" that a major corporation took advantage of all legal means of limiting its tax liability and b) imagine that we could solve budget problems by increasing "corporate taxes."

1 - GE owns NBC. It would be slanderous, of course, to suggest that the editorial judgement of the non-partisan, objective news professionals at NBC might be influenced in any way, however slight, by that connection.

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