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    GE Cronies Cuddle Up to Tax Code

    02/28/2011

    Business Week does a great job of outlining GE's tax code shenanigans. In sum, the company has laid out big money to powerful DC lobbyists to take advantage of and keep various breaks and loopholes in the tax code.  This isn't anything new or particularly surprising, but it is a great example of what happens when you have a toxic combination of a long and complex tax code and rent-seeking corporations who have been able to carve out special treatment at the expense of individuals.

    One of the biggest beneficiaries was General Electric (GE), which won the right to continue deferring tax on income from overseas financing deals. That includes some earnings that GE Capital, a finance unit that kicked in about a third of the parent company's $150 billion in revenue last year, derives from loans to overseas buyers of GE equipment. "There was an awful lot of lobbying going on," says Kenneth Kies, managing director of the Federal Policy Group, a former chief of staff of the Joint Committee on Taxation and one of GE's many outside lobbyists. Right after the midterm elections, "Democrats didn't know which way was up and Republicans didn't yet have control of the House."

    Also of note is the other company mentioned in the article: Caterpiller (CAT).  Both GE and CAT were once among the biggest names in the US Climate Action Partnership, a coalition aimed at pushing through cap and trade - a policy that would have lined the pockets of corporations with subsidies and green technology mandates at the expense of taxpayers.

    This is an important reminder that rent-seeking isn't confined to one issue or another - it happens anywhere corporations see they can make a buck.  That isn't a terrible thing in and of itself.  It's the unfair treatment the very powerful corporations can purchase for themselves, that is problematic.

    All this could be avoided if we scrapped the code - making things fairer and flatter wouldn't leave any room for carving out preferential deals - keeping everything above board and removing the incentive to rent-seek in this arena.

    The article warns that this will be an uphill battle, though:

    Now the tax-break industry is gearing up for a bigger confrontation. As Congress debates a possible tax code overhaul, companies such as GE may be wary of trading benefits they have in the current system for a lower statutory rate. Win or lose, Kies says, the battle to reshape the tax code "probably would create a lot of new business" for lobbyists.

    That means we have to work even harder to get big business out of big government.