Credit scores are calculated through complicated and proprietary algorithms that differ among scoring agencies. However, there are generally three major pieces.
The most important: your bill-paying history. It accounts for as much as 35% of your total score. Pay all your bills on time. Even if it's just the minimum payment, make sure that bill is marked paid on the designated date, or sooner.
Next, your "utilization rate," or debt-to-available-credit ratio, counts for about 30% of your score. Mr. D'Arruda says his is usually about 10% to 15%. Creditors don't want to see the ratio over 30% and consider it an important sign of your financial acumen and any money challenges you are facing.
"You don't need a lot of credit cards to have a good utilization rate," says Barry Paperno, consumer operations manager for myFICO.com, the consumer arm of credit scorer FICO. "Obtaining 25 credit cards for your score is overkill. Utilization looks at percentages more than dollars."
If you have $300,000 in available credit and a $30,000 balance, your utilization rate is 10%; if your available credit stands at $3,000 and you owe $300, your utilization rate is the same.
Be wary of your per-card rate, too. If you have a credit card with a $5,000 limit and you charge $4,750 for a home-theater system, your utilization rate on that card may set off alarms.
"It's a good idea to try to keep the balance on each card under 30% of the limit," says Steven Katz, senior director of operations for credit-management company TransUnion.
Having access to credit but not using it won't improve your score, but that doesn't mean you have to carry a balance each month. You simply need to use the card and pay it off to maximize your credit score.
"The ideal place to be is under a 10% utilization rate but over 0%," FICO's Mr. Paperno says. "There needs to be some kind of recent activity" to activate a score.
Your credit mix and history contribute about 15% to your score. Creditors like to see how you handle revolving credit, or credit cards, and installment loans, like mortgages and car and student loans. They average the age of the account divided by the number of accounts.
Opening new accounts can affect about 10% of your score. "Taking on new credit has been shown to indicate a higher level of risk," Mr. Paperno says. "People who go into default tend to have added new credit more recently than those who haven't."
http://online.wsj.com/article/SB10001424052702304451504576394093505289846.html
Tuesday, June 28, 2011
Thursday, April 07, 2011
Declining Marginal Utility: More Workers than Unproductive Jobs
The Servant Problem
In Search of the Lost Battalion of America’s Unemployed
By Lewis H. Lapham
In Search of the Lost Battalion of America’s Unemployed
By Lewis H. Lapham
published @ tomdispatch.com on 4/11/2011
[A longer version of this essay appears in "Lines of Work," the Spring 2011 issue of Lapham's Quarterly.]
Man must be doing something, or fancy that he is doing something, for in him throbs the creative impulse; the mere basker in the sunshine is not a natural, but an abnormal man. -- Henry George
The news media these days look to outperform one another in their showings of concern for the lost battalion of America’s unemployed. Consult any newspaper, wander the Internet or the television talk-show circuit, and at the top of the column or the hour the headline is jobs. Jobs, the bedrock of America’s world-beating prosperity, the cornerstones of its future comfort and well-being -- gone to Mexico or China, deleted from payrolls in Michigan and Ohio, mothballed in the Arizona desert.
The nation’s unemployment rate, officially pegged at 9.4% but probably nearer to 17%, in any event no fewer than 25 million Americans, a number more than equal to the entire population of North Korea, out of work or on the run. The metrics, so say President Obama, the Wall Street Journal, and A Prairie Home Companion, are not good. The stock markets may have weathered the storm of the recession, as have the country’s corporate profit margins, but unless jobs can be found, we wave goodbye to America the Beautiful.
Not being an economist and never having been at ease in the company of flow charts, I don’t question the expert testimony, but I notice that it doesn’t have much to do with human beings, much less with the understanding of a man’s work as the meaning of his life or the freedom of his mind. Purse-lipped and solemn, the commentators for the Financial Times and MSNBC mention the harm done to the country’s credit rating, deplore the trade and budget deficits, discuss the cutting back of pensions and public services. From the tone of the conversation, I can imagine myself at a lawn party somewhere in Fairfield County, Connecticut, listening to the lady in the flowered hat talk about the difficulty of finding decent help.
Speaking Tools Versus Busy Bees
The framing of the country’s unemployment trouble as an unfortunate metastasis of the servant problem should come as no surprise. The country is in the hands of an affluent oligarchy content with Voltaire’s observation that “the comfort of the rich depends upon an abundant supply of the poor.” During Ronald Reagan’s terms as president, the income that individual American families received from rents, dividends, and interest surpassed the income earned in wages. Over the last 30 years, the wealth of the emergent rentier class has been sustained by an increasingly unequal sharing of the gross domestic product; the percentage of GDP accounted for by manufacturing fell from 21% to 14%, and the percentage accounted for by finance rose from 14% to 21%.
The imbalances become greater over time; as between compensations awarded to the high-end baskers in the sunshine and those provided to the low-end squatters in the shade, the differential at last count in 2009 stood at 263 to 1. With wealth comes power in Washington, so it’s also no surprise that the government, whether graspingly Republican or scavengingly Democratic, adopts the attitudes and prejudices of the monied sultanate. So do most of the nation’s news media, their showings of concern expressed in the lawn-party voices of the caterers distributing the strawberries.
The lines of work are as numberless as the hooks in the sea, but they divide broadly into employments bent to one’s own purpose and those bound to a purpose other than one’s own. It is the former that reflects the founding idea of America. The Puritan settlers of the seventeenth-century New England wilderness arrived from an old world in which the civilizations both east and west of Suez fetched their food and shelter from the work of variously denominated slaves.
The ruling classes of antiquity, like those in medieval and early Renaissance Europe, regarded the necessity of having to earn a living as a mortification of the body and a degradation of the mind. Aristotle had classified slaves as “speaking tools,” available for every purpose except their own, and for the next 2,000 years, in Asia as in Europe, it was generally understood that the terms of a man’s employment were settled at birth. The newfound land of North America afforded an escape from the burdens of the past imposed by the divine right of inherited privilege as well as those enforced by Barbary pirates and British naval officers, the architects of the New Jerusalem bringing with them the Protestant belief that it was by a man’s work that he was known, not only to himself, but also to God and to his fellow men.
[A longer version of this essay appears in "Lines of Work," the Spring 2011 issue of Lapham's Quarterly.]
Man must be doing something, or fancy that he is doing something, for in him throbs the creative impulse; the mere basker in the sunshine is not a natural, but an abnormal man. -- Henry George
The news media these days look to outperform one another in their showings of concern for the lost battalion of America’s unemployed. Consult any newspaper, wander the Internet or the television talk-show circuit, and at the top of the column or the hour the headline is jobs. Jobs, the bedrock of America’s world-beating prosperity, the cornerstones of its future comfort and well-being -- gone to Mexico or China, deleted from payrolls in Michigan and Ohio, mothballed in the Arizona desert.
The nation’s unemployment rate, officially pegged at 9.4% but probably nearer to 17%, in any event no fewer than 25 million Americans, a number more than equal to the entire population of North Korea, out of work or on the run. The metrics, so say President Obama, the Wall Street Journal, and A Prairie Home Companion, are not good. The stock markets may have weathered the storm of the recession, as have the country’s corporate profit margins, but unless jobs can be found, we wave goodbye to America the Beautiful.
Not being an economist and never having been at ease in the company of flow charts, I don’t question the expert testimony, but I notice that it doesn’t have much to do with human beings, much less with the understanding of a man’s work as the meaning of his life or the freedom of his mind. Purse-lipped and solemn, the commentators for the Financial Times and MSNBC mention the harm done to the country’s credit rating, deplore the trade and budget deficits, discuss the cutting back of pensions and public services. From the tone of the conversation, I can imagine myself at a lawn party somewhere in Fairfield County, Connecticut, listening to the lady in the flowered hat talk about the difficulty of finding decent help.
Speaking Tools Versus Busy Bees
The framing of the country’s unemployment trouble as an unfortunate metastasis of the servant problem should come as no surprise. The country is in the hands of an affluent oligarchy content with Voltaire’s observation that “the comfort of the rich depends upon an abundant supply of the poor.” During Ronald Reagan’s terms as president, the income that individual American families received from rents, dividends, and interest surpassed the income earned in wages. Over the last 30 years, the wealth of the emergent rentier class has been sustained by an increasingly unequal sharing of the gross domestic product; the percentage of GDP accounted for by manufacturing fell from 21% to 14%, and the percentage accounted for by finance rose from 14% to 21%.
The imbalances become greater over time; as between compensations awarded to the high-end baskers in the sunshine and those provided to the low-end squatters in the shade, the differential at last count in 2009 stood at 263 to 1. With wealth comes power in Washington, so it’s also no surprise that the government, whether graspingly Republican or scavengingly Democratic, adopts the attitudes and prejudices of the monied sultanate. So do most of the nation’s news media, their showings of concern expressed in the lawn-party voices of the caterers distributing the strawberries.
The lines of work are as numberless as the hooks in the sea, but they divide broadly into employments bent to one’s own purpose and those bound to a purpose other than one’s own. It is the former that reflects the founding idea of America. The Puritan settlers of the seventeenth-century New England wilderness arrived from an old world in which the civilizations both east and west of Suez fetched their food and shelter from the work of variously denominated slaves.
The ruling classes of antiquity, like those in medieval and early Renaissance Europe, regarded the necessity of having to earn a living as a mortification of the body and a degradation of the mind. Aristotle had classified slaves as “speaking tools,” available for every purpose except their own, and for the next 2,000 years, in Asia as in Europe, it was generally understood that the terms of a man’s employment were settled at birth. The newfound land of North America afforded an escape from the burdens of the past imposed by the divine right of inherited privilege as well as those enforced by Barbary pirates and British naval officers, the architects of the New Jerusalem bringing with them the Protestant belief that it was by a man’s work that he was known, not only to himself, but also to God and to his fellow men.
On no less an authority than that of John Calvin, they had been given to understand that there was “no employment so mean and sordid (provided we follow our own vocation) as not to appear truly respectable and be deemed highly important in the sight of God.” The thought embraced St. Benedict’s Catholic certainty that “Idleness is the enemy of the soul,” as well as the meditation of the Roman emperor Marcus Aurelius, who likens the work for which men are by their nature born to that of “craftsmen who love their trade,” equivalent in turn to that of the “sparrows, ants, spiders, bees, all busy at their own tasks, each doing his own part toward a coherent world order.”
Further searches for a coherent world order on the western shores of the Atlantic encouraged the authors of the Constitution to conceive the document as a tool turned to the making of things, of laws as well as of ships and cider mills and songs. As with the plow and the surveyor’s plumb line, the instruments of government were meant to support the liberties of the people, not the ambitions of the state. In answer to questions being asked in Europe about what sort of persons were likely to be well received in the new republic, Benjamin Franklin in 1782 published a pamphlet, Information to Those Who Would Remove to America, in which he observed that in America people “do not inquire concerning a stranger, What is he? but, What can he do? If he has a useful art, he is welcome… But a mere man of quality, who on that account wants to live upon the public by some office or salary will be despised and disregarded.”
The love of country followed from the love of its freedoms of thought and action, not from a pride in its armies, its monuments, its manners, or its debts. Thomas Jefferson, writing his Notes on the State of Virginia in 1781, envisioned a republic of free-standing husbandmen who till the earth, “the chosen people of God… whose breasts He has made His peculiar deposit for substantial and genuine virtue.” The newfound land and its newfound independence both were to be cultivated by employments bent to purposes of the individual, their joint venture resting on a democratic holding of one’s fellow citizens in thoughtful regard not because they were rich or beautiful or famous but because they were fellow citizens.
The Elephant on the Table of American Politics
So at least was the spirit and intent if not always the practice or the case. In return for the Constitution’s ratification by the Southern slave-holding states, the politicians in Philadelphia in 1789 had compromised the principle that all men are created free and equal. They assumed that slavery was soon to become extinct, certain to be swept away on the rising tide of freedom, and so they allowed the Southern planters to temporarily retain their prize collections of speaking tools.
The invention of the cotton gin in 1793 remanded the case for liberty to the higher court of money. Between 1800 and 1860 the demand for cotton on the part of Britain’s satanic textile mills furnished the newly minted United States with its richest flow of capital, serving the purpose that the Saudi Arabians now extract from oil. The opulence of the trade (60% of America’s export in 1860), in large part conducted, to their immense profit, by New York banks and New England ship owners, financed the country’s westward expansion and the early development of its commerce. Without cotton, there would have been no industry, and without slavery, no cotton.
The “darkies” said by Stephen Foster to be singing sweetly in the fields subsidized the music that Walt Whitman heard elsewhere in the country in the singing of “the carpenter,” “the deckhand,” “the mason,” “the shoemaker,” “the hatter,” “the woodcutter,” and “the plowboy” -- the voices of America’s leaves of grass, the fellow citizens in the 1830s and 1840s plying trades in Massachusetts and Ohio, felling trees and building roads in Illinois, piloting Missouri and Mississippi River steamboats, tinkering with farm equipment and firing pins, going west to Texas and California.
Victory in the war with Mexico added another 529,017 square miles รข€¨to the inventory of spacious skies and purple mountain majesties acquired in the Louisiana Purchase; the population went forth and multiplied (9,638,453 in 1820; 31,443,321 in 1860), its restless collective energies geared to vocations apt to prove to be their own reward. Frontier people holding fast to what Mark Twain later claimed as “a maxim of mine that whenever a man preferred being fed by any other man to starving in independence, he ought to be shot.”
During the second half of the nineteenth century, the shooting would have needed to become extensive. The Civil War had rousted slavery from the plantations of the South, but the industrial revolution in the North required an even greater supply of hired hands bound to purposes other than their own. The employments on offer in the Kentucky coal mines and the Pennsylvania steel mills matched Karl Marx’s job description of alienated labor -- a “diabolical activity,” entailing the loss of self. “What is animal becomes human and what is human becomes animal.”
How then to accommodate both man and beast under the same beach umbrella of the American dream, make the freedom-loving argument that Franklin’s craftsmen and Jefferson’s husbandmen differ only in their angles to the sun from the hostess in the bunny costume checking coats in a Playboy club? By the turn of the twentieth century, the question of what constitutes the meaning of labor as well as a fair return on its performance was the elephant on the table of American politics.
An alienated proletariat had been imported from China to build America’s western railroads, from Ireland and Eastern Europe to service its eastern factories, and between 1870 and 1914, the bitter, often violent division between the differently purposed lines of work was made manifest in the financial markets and the streets. The great railroad strike in 1877 moved Thomas Alexander Scott, the president of the Pennsylvania Railroad, to suggest that the strikers be given “a rifle diet for a few days and see how they like that kind of bread.” State militia and federal troops complied with the suggestion, killing more than 100 strikers in Maryland and Pennsylvania. The putting down of the Haymarket Riot in Chicago in 1886, and the breaking of the Homestead Strike in Andrew Carnegie’s steel works in 1892, reinforced the rule of money; the bank panics of 1893 and 1907, preceded by heedless speculation in the stock markets, led to widespread unemployment, bankruptcy, foreclosure, and depression.
The disputes varied in their particulars (the protective tariff, the prices paid for gold and silver, the legitimacy of the labor unions), but in every instance what was at issue were the terms of service as defined on the one hand by President Teddy Roosevelt in a Labor Day speech at Syracuse, New York, in 1903: “Far and away the best prize that life offers is the chance to work hard at work worth doing”; on the other hand by Woodrow Wilson, still president of Princeton University in 1909, speaking to the New York City High School Teachers Association: “We want one class of persons to have a liberal education, and we want another class of persons, a very much larger class of necessity in every society, to forego the privilege of a liberal education and fit themselves to perform specific difficult manual tasks.”
Wilson’s way of looking at things aligns itself with what was to become America’s chrome-plated future, Roosevelt’s with its homespun past. The Rough Rider was trading in nostalgia, looking back to his days as a young man, a young man who also happened to be rich, shooting buffaloes in the Dakota Territory. The sentiment shows up in Norman Maclean’s remembrance of the way it was out among the tall trees in the summer of 1927, “As to the big thing, sawing, it is something beautiful when you are working together -- at times, you forget what you are doing and get lost in abstractions of motion and power. But when sawing isn’t rhythmical, even for a short time, it becomes a kind of mental illness -- maybe even something more deeply disturbing than that. It is as if your heart isn’t working right.”
It is here that one finds the dignity of labor and the expression of man’s humanity to man. One can illuminate the feeling on which Eugene V. Debs, president of the American Railway Union, mounted his candidacy for U.S. president in the election of 1912, attracting over 900,000 votes on the strength of his belief that “the workers are the saviors of society, the redeemers of the race.”
Wilson didn’t think so, and Wilson won the election, defeating Roosevelt as well as Debs. The establishment in 1913 of the Federal Reserve Bank overruled the prolonged objection by the instruments of labor to their uses in the hands of capital, shifting control of the nation’s currency from the public to the private sector.
The Labor of Consumption
It is man’s nature to be doing something, or at least to fancy that he’s doing something, but to what purpose, and for whom? Satisfactory answers to the questions lately have been hard to find, not only for the unemployed poor but also for the underemployed remnant of what was once a diligently aspiring middle class. It isn’t simply that the consumer markets don’t value work worth doing; it’s that the society’s ruling and possessing classes regard working for a living as the mark of inferior or damaged goods.
The attitude made its first appearance on the American scene during the Gilded Age, dancing with the newly crowned kings of finance under the ballroom chandeliers in Newport and New York. Thorstein Veblen took note of the arrival in 1899, his Theory of the Leisure Class suggesting that it is the conspicuous consumption of the product of other people’s time and effort that makes up the sum of one’s own worth and meaning. Not the doing of the work, the digesting of it. “Leisure, considered as an employment,” said Veblen, “is closely allied in kind with the life of exploit, and the achievements which characterize a life of leisure and which remain as its decorous criteria, have much in common with the trophies of exploit.”
During the years prior to the Second World War, the attitude was safely confined to a small number of people preserved in the aspic of what was then big money. The victories over Germany and Japan fostered extensions of the franchise. Rescued by force of arms from the Great Depression, America seemed blessed with the enchantments of both Croesus and Colossus, the indisputable proofs of its wealth and military power giving rise to the notion that all its children were the inheritors of a vast fortune and therefore deserving of the best of all possible worlds that money could buy. No reason not to have it all -- a new frontier, a great society, guns for a splendid little war in Asia, butter for the old folks at home, a house in the country, a boat on the lake, the face and fortune in the ad for one of Ralph Lauren’s tennis dresses.
Much of the world in 1945 was either bankrupt or in ruins, and the refurnishing of it supplied the American economy over the next 30 years with an abundance of jobs that afforded the means of independence and a measure of self-worth, while at the same time bringing forth the trophies of exploit to a consumer market more wonderful than the wonderful world of Oz, seeding ever broader acres of the nation’s human topsoil with the presumptions of entitlement favored by Veblen’s Newport heiresses. Don’t worry, be happy; go forth and shop. Leisure considered as employment.
Which was all well and good until it turned out, somewhere in the middle of the 1980s on the yellow brick road with Toto and the Gipper, that the Wizard was easy access to conspicuous credit. For how else could the American leaves of grass join their top-dressed companions on a golf course unless they borrowed money? The country’s working and middle classes discovered that it wasn’t the value of the work itself, or its manufacture of a decent living (as architect, bus driver, sales clerk, actress, lathe operator, automobile mechanic) that made up the sum of the country’s wealth and well-being.
Their great collective enterprise was the labor of consumption, and with it the derivative of debt, a byproduct, like the methane exuded by factory-farmed pigs, that funded the patriotic service owing to God, country, and the American Express card. The work was maybe mindless, a substitution of what is animal for what is human, but it fattened the gross domestic product, enriched the insurance companies and the banks, welcomed the second coming of an American Gilded Age, and now accounts for the increasingly grotesque disparity between the income earned as wages and the revenue collected as rent, interest, dividend, stock option, and year-end bonus.
Americans with jobs imagine they now work longer and harder hours than did their forebears on Mark Twain’s Missouri frontier; if so, their labor serves a purpose other than the one in hand. Finance accounted for 47% of total U.S. corporate profits in 2007; 58% of Harvard University’s male graduates in that same year (the heirs and assigns of Woodrow Wilson’s small class of persons deserving of a liberal education) took up careers as high-end traffickers in the drug of debt. It’s a lucrative trade, up to the standard of the cotton export from the dear old antebellum South. That it doesn’t add to the sum of human happiness or meaning is probably why the gentry on the lawns of Connecticut, together with their upper servants in Washington and the news media, talk about the lost battalion of America’s unemployed as a set of conveniently invisible numbers rather than as a body of fellow citizens.
Friday, March 25, 2011
How the World Really Works: Corporate Tax Burdens in a Captive Democracy
G.E.’s Strategies Let It Avoid Taxes Altogether
By David Kocieniewski. nytimes.com 3/24/2011
General Electric, the nation’s largest corporation, had a very good year in 2010.
The company reported worldwide profits of $14.2 billion, and said $5.1 billion of the total came from its operations in the United States.
Its American tax bill? None. In fact, G.E. claimed a tax benefit of $3.2 billion.
That may be hard to fathom for the millions of American business owners and households now preparing their own returns, but low taxes are nothing new for G.E. The company has been cutting the percentage of its American profits paid to the Internal Revenue Service for years, resulting in a far lower rate than at most multinational companies.
Its extraordinary success is based on an aggressive strategy that mixes fierce lobbying for tax breaks and innovative accounting that enables it to concentrate its profits offshore. G.E.’s giant tax department, led by a bow-tied former Treasury official named John Samuels, is often referred to as the world’s best tax law firm. Indeed, the company’s slogan “Imagination at Work” fits this department well. The team includes former officials not just from the Treasury, but also from the I.R.S. and virtually all the tax-writing committees in Congress.
While General Electric is one of the most skilled at reducing its tax burden, many other companies have become better at this as well. Although the top corporate tax rate in the United States is 35 percent, one of the highest in the world, companies have been increasingly using a maze of shelters, tax credits and subsidies to pay far less.
In a regulatory filing just a week before the Japanese disaster put a spotlight on the company’s nuclear reactor business, G.E. reported that its tax burden was 7.4 percent of its American profits, about a third of the average reported by other American multinationals. Even those figures are overstated, because they include taxes that will be paid only if the company brings its overseas profits back to the United States. With those profits still offshore, G.E. is effectively getting money back.
Such strategies, as well as changes in tax laws that encouraged some businesses and professionals to file as individuals, have pushed down the corporate share of the nation’s tax receipts — from 30 percent of all federal revenue in the mid-1950s to 6.6 percent in 2009.
Yet many companies say the current level is so high it hobbles them in competing with foreign rivals. Even as the government faces a mounting budget deficit, the talk in Washington is about lower rates. President Obama has said he is considering an overhaul of the corporate tax system, with an eye to lowering the top rate, ending some tax subsidies and loopholes and generating the same amount of revenue. He has designated G.E.’s chief executive, Jeffrey R. Immelt, as his liaison to the business community and as the chairman of the President’s Council on Jobs and Competitiveness, and it is expected to discuss corporate taxes.
“He understands what it takes for America to compete in the global economy,” Mr. Obama said of Mr. Immelt, on his appointment in January, after touring a G.E. factory in upstate New York that makes turbines and generators for sale around the world.
A review of company filings and Congressional records shows that one of the most striking advantages of General Electric is its ability to lobby for, win and take advantage of tax breaks.
Over the last decade, G.E. has spent tens of millions of dollars to push for changes in tax law, from more generous depreciation schedules on jet engines to “green energy” credits for its wind turbines. But the most lucrative of these measures allows G.E. to operate a vast leasing and lending business abroad with profits that face little foreign taxes and no American taxes as long as the money remains overseas.
Company officials say that these measures are necessary for G.E. to compete against global rivals and that they are acting as responsible citizens. “G.E. is committed to acting with integrity in relation to our tax obligations,” said Anne Eisele, a spokeswoman. “We are committed to complying with tax rules and paying all legally obliged taxes. At the same time, we have a responsibility to our shareholders to legally minimize our costs.”
The assortment of tax breaks G.E. has won in Washington has provided a significant short-term gain for the company’s executives and shareholders. While the financial crisis led G.E. to post a loss in the United States in 2009, regulatory filings show that in the last five years, G.E. has accumulated $26 billion in American profits, and received a net tax benefit from the I.R.S. of $4.1 billion.
But critics say the use of so many shelters amounts to corporate welfare, allowing G.E. not just to avoid taxes on profitable overseas lending but also to amass tax credits and write-offs that can be used to reduce taxes on billions of dollars of profit from domestic manufacturing. They say that the assertive tax avoidance of multinationals like G.E. not only shortchanges the Treasury, but also harms the economy by discouraging investment and hiring in the United States.
“In a rational system, a corporation’s tax department would be there to make sure a company complied with the law,” said Len Burman, a former Treasury official who now is a scholar at the nonpartisan Tax Policy Center. “But in our system, there are corporations that view their tax departments as a profit center, and the effects on public policy can be negative.”
The shelters are so crucial to G.E.’s bottom line that when Congress threatened to let the most lucrative one expire in 2008, the company came out in full force. G.E. officials worked with dozens of financial companies to send letters to Congress and hired a bevy of outside lobbyists.
The head of its tax team, Mr. Samuels, met with Representative Charles B. Rangel, then chairman of the Ways and Means Committee, which would decide the fate of the tax break. As he sat with the committee’s staff members outside Mr. Rangel’s office, Mr. Samuels dropped to his knee and pretended to beg for the provision to be extended — a flourish made in jest, he said through a spokeswoman.
That day, Mr. Rangel reversed his opposition to the tax break, according to other Democrats on the committee.
The following month, Mr. Rangel and Mr. Immelt stood together at St. Nicholas Park in Harlem as G.E. announced that its foundation had awarded $30 million to New York City schools, including $11 million to benefit various schools in Mr. Rangel’s district. Joel I. Klein, then the schools chancellor, and Mayor Michael R. Bloomberg, who presided, said it was the largest gift ever to the city’s schools.
G.E. officials say the donation was granted solely on the merit of the project. “The foundation goes to great lengths to ensure grant decisions are not influenced by company government relations or lobbying priorities,” Ms. Eisele said.
Mr. Rangel, who was censured by Congress last year for soliciting donations from corporations and executives with business before his committee, said this month that the donation was unrelated to his official actions.
Defying Reagan’s Legacy
General Electric has been a household name for generations, with light bulbs, electric fans, refrigerators and other appliances in millions of American homes. But today the consumer appliance division accounts for less than 6 percent of revenue, while lending accounts for more than 30 percent. Industrial, commercial and medical equipment like power plant turbines and jet engines account for about 50 percent. Its industrial work includes everything from wind farms to nuclear energy projects like the troubled plant in Japan, built in the 1970s.
Because its lending division, GE Capital, has provided more than half of the company’s profit in some recent years, many Wall Street analysts view G.E. not as a manufacturer but as an unregulated lender that also makes dishwashers and M.R.I. machines.
As it has evolved, the company has used, and in some cases pioneered, aggressive strategies to lower its tax bill. In the mid-1980s, President Ronald Reagan overhauled the tax system after learning that G.E. — a company for which he had once worked as a commercial pitchman — was among dozens of corporations that had used accounting gamesmanship to avoid paying any taxes.
“I didn’t realize things had gotten that far out of line,” Mr. Reagan told the Treasury secretary, Donald T. Regan, according to Mr. Regan’s 1988 memoir. The president supported a change that closed loopholes and required G.E. to pay a far higher effective rate, up to 32.5 percent.
That pendulum began to swing back in the late 1990s. G.E. and other financial services firms won a change in tax law that would allow multinationals to avoid taxes on some kinds of banking and insurance income. The change meant that if G.E. financed the sale of a jet engine or generator in Ireland, for example, the company would no longer have to pay American tax on the interest income as long as the profits remained offshore.
Known as active financing, the tax break proved to be beneficial for investment banks, brokerage firms, auto and farm equipment companies, and lenders like GE Capital. This tax break allowed G.E. to avoid taxes on lending income from abroad, and permitted the company to amass tax credits, write-offs and depreciation. Those benefits are then used to offset taxes on its American manufacturing profits.
G.E. subsequently ramped up its lending business.
As the company expanded abroad, the portion of its profits booked in low-tax countries such as Ireland and Singapore grew far faster. From 1996 through 1998, its profits and revenue in the United States were in sync — 73 percent of the company’s total. Over the last three years, though, 46 percent of the company’s revenue was in the United States, but just 18 percent of its profits.
Martin A. Sullivan, a tax economist for the trade publication Tax Analysts, said that booking such a large percentage of its profits in low-tax countries has “allowed G.E. to bring its U.S. effective tax rate to rock-bottom levels.”
G.E. officials say the disparity between American revenue and American profit is the result of ordinary business factors, such as investment in overseas markets and heavy lending losses in the United States recently. The company also says the nation’s workers benefit when G.E. profits overseas.
“We believe that winning in markets outside the United States increases U.S. exports and jobs,” Mr. Samuels said through a spokeswoman. “If U.S. companies aren’t competitive outside of their home market, it will mean fewer, not more, jobs in the United States, as the business will go to a non-U.S. competitor.”
The company does not specify how much of its global tax savings derive from active financing, but called it “significant” in its annual report. Stock analysts estimate the tax benefit to G.E. to be hundreds of millions of dollars a year.
“Cracking down on offshore profit-shifting by financial companies like G.E. was one of the important achievements of President Reagan’s 1986 Tax Reform Act,” said Robert S. McIntyre, director of the liberal group Citizens for Tax Justice, who played a key role in those changes. “The fact that Congress was snookered into undermining that reform at the behest of companies like G.E. is an insult not just to Reagan, but to all the ordinary American taxpayers who have to foot the bill for G.E.’s rampant tax sheltering.”
A Full-Court Press
Minimizing taxes is so important at G.E. that Mr. Samuels has placed tax strategists in decision-making positions in many major manufacturing facilities and businesses around the globe. Mr. Samuels, a graduate of Vanderbilt University and the University of Chicago Law School, declined to be interviewed for this article. Company officials acknowledged that the tax department had expanded since he joined the company in 1988, and said it now had 975 employees.
At a tax symposium in 2007, a G.E. tax official said the department’s “mission statement” consisted of 19 rules and urged employees to divide their time evenly between ensuring compliance with the law and “looking to exploit opportunities to reduce tax.”
Transforming the most creative strategies of the tax team into law is another extensive operation. G.E. spends heavily on lobbying: more than $200 million over the last decade, according to the Center for Responsive Politics. Records filed with election officials show a significant portion of that money was devoted to tax legislation. G.E. has even turned setbacks into successes with Congressional help. After the World Trade Organization forced the United States to halt $5 billion a year in export subsidies to G.E. and other manufacturers, the company’s lawyers and lobbyists became deeply involved in rewriting a portion of the corporate tax code, according to news reports after the 2002 decision and a Congressional staff member.
By the time the measure — the American Jobs Creation Act — was signed into law by President George W. Bush in 2004, it contained more than $13 billion a year in tax breaks for corporations, many very beneficial to G.E. One provision allowed companies to defer taxes on overseas profits from leasing planes to airlines. It was so generous — and so tailored to G.E. and a handful of other companies — that staff members on the House Ways and Means Committee publicly complained that G.E. would reap “an overwhelming percentage” of the estimated $100 million in annual tax savings.
According to its 2007 regulatory filing, the company saved more than $1 billion in American taxes because of that law in the three years after it was enacted.
By 2008, however, concern over the growing cost of overseas tax loopholes put G.E. and other corporations on the defensive. With Democrats in control of both houses of Congress, momentum was building to let the active financing exception expire. Mr. Rangel of the Ways and Means Committee indicated that he favored letting it end and directing the new revenue — an estimated $4 billion a year — to other priorities.
G.E. pushed back. In addition to the $18 million allocated to its in-house lobbying department, the company spent more than $3 million in 2008 on lobbying firms assigned to the task.
Mr. Rangel dropped his opposition to the tax break. Representative Joseph Crowley, Democrat of New York, said he had helped sway Mr. Rangel by arguing that the tax break would help Citigroup, a major employer in Mr. Crowley’s district.
G.E. officials say that neither Mr. Samuels nor any lobbyists working on behalf of the company discussed the possibility of a charitable donation with Mr. Rangel. The only contact was made in late 2007, a company spokesman said, when Mr. Immelt called to inform Mr. Rangel that the foundation was giving money to schools in his district.
But in 2008, when Mr. Rangel was criticized for using Congressional stationery to solicit donations for a City College of New York school being built in his honor, Mr. Rangel said he had appealed to G.E. executives to make the $30 million donation to New York City schools.
G.E. had nothing to do with the City College project, he said at a July 2008 news conference in Washington. “And I didn’t send them any letter,” Mr. Rangel said, adding that he “leaned on them to help us out in the city of New York as they have throughout the country. But my point there was that I do know that the C.E.O. there is connected with the foundation.”
In an interview this month, Mr. Rangel offered a different version of events — saying he didn’t remember ever discussing it with Mr. Immelt and was unaware of the foundation’s donation until the mayor’s office called him in June, before the announcement and after Mr. Rangel had dropped his opposition to the tax break.
Asked to explain the discrepancies between his accounts, Mr. Rangel replied, “I have no idea.”
Value to Americans?
While G.E.’s declining tax rates have bolstered profits and helped the company continue paying dividends to shareholders during the economic downturn, some tax experts question what taxpayers are getting in return. Since 2002, the company has eliminated a fifth of its work force in the United States while increasing overseas employment. In that time, G.E.’s accumulated offshore profits have risen to $92 billion from $15 billion.
“That G.E. can almost set its own tax rate shows how very much we need reform,” said Representative Lloyd Doggett, Democrat of Texas, who has proposed closing many corporate tax shelters. “Our tax system should encourage job creation and investment in America and end these tax incentives for exporting jobs and dodging responsibility for the cost of securing our country.”
As the Obama administration and leaders in Congress consider proposals to revamp the corporate tax code, G.E. is well prepared to defend its interests. The company spent $4.1 million on outside lobbyists last year, including four boutique firms that specialize in tax policy.
“We are a diverse company, so there are a lot of issues that the government considers, that Congress considers, that affect our shareholders,” said Gary Sheffer, a G.E. spokesman. “So we want to be sure our voice is heard.”
By David Kocieniewski. nytimes.com 3/24/2011
General Electric, the nation’s largest corporation, had a very good year in 2010.
The company reported worldwide profits of $14.2 billion, and said $5.1 billion of the total came from its operations in the United States.
Its American tax bill? None. In fact, G.E. claimed a tax benefit of $3.2 billion.
That may be hard to fathom for the millions of American business owners and households now preparing their own returns, but low taxes are nothing new for G.E. The company has been cutting the percentage of its American profits paid to the Internal Revenue Service for years, resulting in a far lower rate than at most multinational companies.
Its extraordinary success is based on an aggressive strategy that mixes fierce lobbying for tax breaks and innovative accounting that enables it to concentrate its profits offshore. G.E.’s giant tax department, led by a bow-tied former Treasury official named John Samuels, is often referred to as the world’s best tax law firm. Indeed, the company’s slogan “Imagination at Work” fits this department well. The team includes former officials not just from the Treasury, but also from the I.R.S. and virtually all the tax-writing committees in Congress.
While General Electric is one of the most skilled at reducing its tax burden, many other companies have become better at this as well. Although the top corporate tax rate in the United States is 35 percent, one of the highest in the world, companies have been increasingly using a maze of shelters, tax credits and subsidies to pay far less.
In a regulatory filing just a week before the Japanese disaster put a spotlight on the company’s nuclear reactor business, G.E. reported that its tax burden was 7.4 percent of its American profits, about a third of the average reported by other American multinationals. Even those figures are overstated, because they include taxes that will be paid only if the company brings its overseas profits back to the United States. With those profits still offshore, G.E. is effectively getting money back.
Such strategies, as well as changes in tax laws that encouraged some businesses and professionals to file as individuals, have pushed down the corporate share of the nation’s tax receipts — from 30 percent of all federal revenue in the mid-1950s to 6.6 percent in 2009.
Yet many companies say the current level is so high it hobbles them in competing with foreign rivals. Even as the government faces a mounting budget deficit, the talk in Washington is about lower rates. President Obama has said he is considering an overhaul of the corporate tax system, with an eye to lowering the top rate, ending some tax subsidies and loopholes and generating the same amount of revenue. He has designated G.E.’s chief executive, Jeffrey R. Immelt, as his liaison to the business community and as the chairman of the President’s Council on Jobs and Competitiveness, and it is expected to discuss corporate taxes.
“He understands what it takes for America to compete in the global economy,” Mr. Obama said of Mr. Immelt, on his appointment in January, after touring a G.E. factory in upstate New York that makes turbines and generators for sale around the world.
A review of company filings and Congressional records shows that one of the most striking advantages of General Electric is its ability to lobby for, win and take advantage of tax breaks.
Over the last decade, G.E. has spent tens of millions of dollars to push for changes in tax law, from more generous depreciation schedules on jet engines to “green energy” credits for its wind turbines. But the most lucrative of these measures allows G.E. to operate a vast leasing and lending business abroad with profits that face little foreign taxes and no American taxes as long as the money remains overseas.
Company officials say that these measures are necessary for G.E. to compete against global rivals and that they are acting as responsible citizens. “G.E. is committed to acting with integrity in relation to our tax obligations,” said Anne Eisele, a spokeswoman. “We are committed to complying with tax rules and paying all legally obliged taxes. At the same time, we have a responsibility to our shareholders to legally minimize our costs.”
The assortment of tax breaks G.E. has won in Washington has provided a significant short-term gain for the company’s executives and shareholders. While the financial crisis led G.E. to post a loss in the United States in 2009, regulatory filings show that in the last five years, G.E. has accumulated $26 billion in American profits, and received a net tax benefit from the I.R.S. of $4.1 billion.
But critics say the use of so many shelters amounts to corporate welfare, allowing G.E. not just to avoid taxes on profitable overseas lending but also to amass tax credits and write-offs that can be used to reduce taxes on billions of dollars of profit from domestic manufacturing. They say that the assertive tax avoidance of multinationals like G.E. not only shortchanges the Treasury, but also harms the economy by discouraging investment and hiring in the United States.
“In a rational system, a corporation’s tax department would be there to make sure a company complied with the law,” said Len Burman, a former Treasury official who now is a scholar at the nonpartisan Tax Policy Center. “But in our system, there are corporations that view their tax departments as a profit center, and the effects on public policy can be negative.”
The shelters are so crucial to G.E.’s bottom line that when Congress threatened to let the most lucrative one expire in 2008, the company came out in full force. G.E. officials worked with dozens of financial companies to send letters to Congress and hired a bevy of outside lobbyists.
The head of its tax team, Mr. Samuels, met with Representative Charles B. Rangel, then chairman of the Ways and Means Committee, which would decide the fate of the tax break. As he sat with the committee’s staff members outside Mr. Rangel’s office, Mr. Samuels dropped to his knee and pretended to beg for the provision to be extended — a flourish made in jest, he said through a spokeswoman.
That day, Mr. Rangel reversed his opposition to the tax break, according to other Democrats on the committee.
The following month, Mr. Rangel and Mr. Immelt stood together at St. Nicholas Park in Harlem as G.E. announced that its foundation had awarded $30 million to New York City schools, including $11 million to benefit various schools in Mr. Rangel’s district. Joel I. Klein, then the schools chancellor, and Mayor Michael R. Bloomberg, who presided, said it was the largest gift ever to the city’s schools.
G.E. officials say the donation was granted solely on the merit of the project. “The foundation goes to great lengths to ensure grant decisions are not influenced by company government relations or lobbying priorities,” Ms. Eisele said.
Mr. Rangel, who was censured by Congress last year for soliciting donations from corporations and executives with business before his committee, said this month that the donation was unrelated to his official actions.
Defying Reagan’s Legacy
General Electric has been a household name for generations, with light bulbs, electric fans, refrigerators and other appliances in millions of American homes. But today the consumer appliance division accounts for less than 6 percent of revenue, while lending accounts for more than 30 percent. Industrial, commercial and medical equipment like power plant turbines and jet engines account for about 50 percent. Its industrial work includes everything from wind farms to nuclear energy projects like the troubled plant in Japan, built in the 1970s.
Because its lending division, GE Capital, has provided more than half of the company’s profit in some recent years, many Wall Street analysts view G.E. not as a manufacturer but as an unregulated lender that also makes dishwashers and M.R.I. machines.
As it has evolved, the company has used, and in some cases pioneered, aggressive strategies to lower its tax bill. In the mid-1980s, President Ronald Reagan overhauled the tax system after learning that G.E. — a company for which he had once worked as a commercial pitchman — was among dozens of corporations that had used accounting gamesmanship to avoid paying any taxes.
“I didn’t realize things had gotten that far out of line,” Mr. Reagan told the Treasury secretary, Donald T. Regan, according to Mr. Regan’s 1988 memoir. The president supported a change that closed loopholes and required G.E. to pay a far higher effective rate, up to 32.5 percent.
That pendulum began to swing back in the late 1990s. G.E. and other financial services firms won a change in tax law that would allow multinationals to avoid taxes on some kinds of banking and insurance income. The change meant that if G.E. financed the sale of a jet engine or generator in Ireland, for example, the company would no longer have to pay American tax on the interest income as long as the profits remained offshore.
Known as active financing, the tax break proved to be beneficial for investment banks, brokerage firms, auto and farm equipment companies, and lenders like GE Capital. This tax break allowed G.E. to avoid taxes on lending income from abroad, and permitted the company to amass tax credits, write-offs and depreciation. Those benefits are then used to offset taxes on its American manufacturing profits.
G.E. subsequently ramped up its lending business.
As the company expanded abroad, the portion of its profits booked in low-tax countries such as Ireland and Singapore grew far faster. From 1996 through 1998, its profits and revenue in the United States were in sync — 73 percent of the company’s total. Over the last three years, though, 46 percent of the company’s revenue was in the United States, but just 18 percent of its profits.
Martin A. Sullivan, a tax economist for the trade publication Tax Analysts, said that booking such a large percentage of its profits in low-tax countries has “allowed G.E. to bring its U.S. effective tax rate to rock-bottom levels.”
G.E. officials say the disparity between American revenue and American profit is the result of ordinary business factors, such as investment in overseas markets and heavy lending losses in the United States recently. The company also says the nation’s workers benefit when G.E. profits overseas.
“We believe that winning in markets outside the United States increases U.S. exports and jobs,” Mr. Samuels said through a spokeswoman. “If U.S. companies aren’t competitive outside of their home market, it will mean fewer, not more, jobs in the United States, as the business will go to a non-U.S. competitor.”
The company does not specify how much of its global tax savings derive from active financing, but called it “significant” in its annual report. Stock analysts estimate the tax benefit to G.E. to be hundreds of millions of dollars a year.
“Cracking down on offshore profit-shifting by financial companies like G.E. was one of the important achievements of President Reagan’s 1986 Tax Reform Act,” said Robert S. McIntyre, director of the liberal group Citizens for Tax Justice, who played a key role in those changes. “The fact that Congress was snookered into undermining that reform at the behest of companies like G.E. is an insult not just to Reagan, but to all the ordinary American taxpayers who have to foot the bill for G.E.’s rampant tax sheltering.”
A Full-Court Press
Minimizing taxes is so important at G.E. that Mr. Samuels has placed tax strategists in decision-making positions in many major manufacturing facilities and businesses around the globe. Mr. Samuels, a graduate of Vanderbilt University and the University of Chicago Law School, declined to be interviewed for this article. Company officials acknowledged that the tax department had expanded since he joined the company in 1988, and said it now had 975 employees.
At a tax symposium in 2007, a G.E. tax official said the department’s “mission statement” consisted of 19 rules and urged employees to divide their time evenly between ensuring compliance with the law and “looking to exploit opportunities to reduce tax.”
Transforming the most creative strategies of the tax team into law is another extensive operation. G.E. spends heavily on lobbying: more than $200 million over the last decade, according to the Center for Responsive Politics. Records filed with election officials show a significant portion of that money was devoted to tax legislation. G.E. has even turned setbacks into successes with Congressional help. After the World Trade Organization forced the United States to halt $5 billion a year in export subsidies to G.E. and other manufacturers, the company’s lawyers and lobbyists became deeply involved in rewriting a portion of the corporate tax code, according to news reports after the 2002 decision and a Congressional staff member.
By the time the measure — the American Jobs Creation Act — was signed into law by President George W. Bush in 2004, it contained more than $13 billion a year in tax breaks for corporations, many very beneficial to G.E. One provision allowed companies to defer taxes on overseas profits from leasing planes to airlines. It was so generous — and so tailored to G.E. and a handful of other companies — that staff members on the House Ways and Means Committee publicly complained that G.E. would reap “an overwhelming percentage” of the estimated $100 million in annual tax savings.
According to its 2007 regulatory filing, the company saved more than $1 billion in American taxes because of that law in the three years after it was enacted.
By 2008, however, concern over the growing cost of overseas tax loopholes put G.E. and other corporations on the defensive. With Democrats in control of both houses of Congress, momentum was building to let the active financing exception expire. Mr. Rangel of the Ways and Means Committee indicated that he favored letting it end and directing the new revenue — an estimated $4 billion a year — to other priorities.
G.E. pushed back. In addition to the $18 million allocated to its in-house lobbying department, the company spent more than $3 million in 2008 on lobbying firms assigned to the task.
Mr. Rangel dropped his opposition to the tax break. Representative Joseph Crowley, Democrat of New York, said he had helped sway Mr. Rangel by arguing that the tax break would help Citigroup, a major employer in Mr. Crowley’s district.
G.E. officials say that neither Mr. Samuels nor any lobbyists working on behalf of the company discussed the possibility of a charitable donation with Mr. Rangel. The only contact was made in late 2007, a company spokesman said, when Mr. Immelt called to inform Mr. Rangel that the foundation was giving money to schools in his district.
But in 2008, when Mr. Rangel was criticized for using Congressional stationery to solicit donations for a City College of New York school being built in his honor, Mr. Rangel said he had appealed to G.E. executives to make the $30 million donation to New York City schools.
G.E. had nothing to do with the City College project, he said at a July 2008 news conference in Washington. “And I didn’t send them any letter,” Mr. Rangel said, adding that he “leaned on them to help us out in the city of New York as they have throughout the country. But my point there was that I do know that the C.E.O. there is connected with the foundation.”
In an interview this month, Mr. Rangel offered a different version of events — saying he didn’t remember ever discussing it with Mr. Immelt and was unaware of the foundation’s donation until the mayor’s office called him in June, before the announcement and after Mr. Rangel had dropped his opposition to the tax break.
Asked to explain the discrepancies between his accounts, Mr. Rangel replied, “I have no idea.”
Value to Americans?
While G.E.’s declining tax rates have bolstered profits and helped the company continue paying dividends to shareholders during the economic downturn, some tax experts question what taxpayers are getting in return. Since 2002, the company has eliminated a fifth of its work force in the United States while increasing overseas employment. In that time, G.E.’s accumulated offshore profits have risen to $92 billion from $15 billion.
“That G.E. can almost set its own tax rate shows how very much we need reform,” said Representative Lloyd Doggett, Democrat of Texas, who has proposed closing many corporate tax shelters. “Our tax system should encourage job creation and investment in America and end these tax incentives for exporting jobs and dodging responsibility for the cost of securing our country.”
As the Obama administration and leaders in Congress consider proposals to revamp the corporate tax code, G.E. is well prepared to defend its interests. The company spent $4.1 million on outside lobbyists last year, including four boutique firms that specialize in tax policy.
“We are a diverse company, so there are a lot of issues that the government considers, that Congress considers, that affect our shareholders,” said Gary Sheffer, a G.E. spokesman. “So we want to be sure our voice is heard.”
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