U.S. needs to reform corporate tax, GE CEO says

By Scott Malone

HANOVER, New Hampshire (Reuters) - The United States needs to reform its corporate tax code and should consider eliminating all loopholes that allow companies to pay less than the statutory rate, General Electric Co 's chief said.

The largest U.S. conglomerate would accept the elimination of loopholes "in a heartbeat" if it was coupled with a lowering of the statutory 35 percent rate, Jeff Immelt told a group of students on Thursday.

"Corporate tax in this country needs to be reformed," Immelt said at Dartmouth College, in Hanover, New Hampshire. "Stuff that the deficit commission came up with, which was a lower corporate tax rate ending every loophole, is what we would take, with a territorial system, we would take in a heartbeat. The fact is I'd take Germany's or Japan's or the U.K.'s corporate tax policy today, sight unseen, without any dispute, I would take any of those tax policies today."

A so-called Congressional "super committee" is working on a way to find another $1.2 trillion in cuts from the nation's budget over the next decade, terms that were part of the recent deal to raise the U.S. debt limit and avoid a default. Existing tax breaks for businesses and individuals cost the government some $1 trillion per year, but Republicans may agree to cutting those if the move is coupled with a reduction in the top tax rates for companies and people.

Immelt also acknowledged the criticism the world's largest maker of jet engines and electric turbines came under this year for its recent low tax rate. A study released in June by the left-leaning research group Citizens for Tax Justice found that GE had an effective tax rate of negative 61.3 percent in 2010, making it one of at least eight big U.S. companies to record a tax benefit rather than a bill for the year.

"GE has paid tens of billions of dollars in taxes over the last decade," he told the crowd at the Ivy League university where he played football as an undergraduate. "Our technique for paying low taxes in 2009 and 2010 was writing off $32 billion (in losses) at our financial service business. I don't recommend it."

Troubles at the GE Capital arm contributed significantly to the company's woes during the financial crisis that sent its shares to 18-year lows in early 2009. They have since rebounded to almost three times their crisis level and closed at $15.34 on Thursday, down 5.5 percent on a day the U.S. stock market dropped sharply.

'RUBBISH' THAT UNCERTAINTY HAMPERING INVESTMENT

Immelt, who leads a panel advising the Obama administration on job creation, said he puts little stock in talk that the government could do more to encourage companies to invest and lower the nation's persistently high unemployment rate.

"A lot has been said that business isn't investing because of uncertainty. I think that's rubbish," the 55-year-old CEO said. "The government couldn't do anything to make me invest and believe me the rest of the world isn't that stable either. We've made our own choices that we're going to keep investing regardless of what happens in Washington."

But in an uncharacteristically animated moment, he blasted critics who contend that companies like GE that do much of their sales outside the United States are hurting the economy. He noted that GE sells 90 percent of its jet engines abroad but manufacturers all of them in U.S. factories.

Geithner: Administration to Push for Corporate Tax Reform Before Election

By Stephen Joyce and Aaron Lorenzo (Washington)

NEW YORK — The Obama administration intends to push for corporate tax reform before the 2012 presidential elections, but any tax reform plan will not be linked to ongoing discussions about raising the debt limit, Treasury Secretary Timothy F. Geithner said May 17.

He flatly rejected the idea of a flat corporate tax rate as part of a tax reform proposal. “No, I don't think so. I don't think there is a realistic prospect of that,” he said.

Though solving the debt limit ceiling may seem politically impossible to some, Geithner said his discussions with Republicans and Democrats make him confident the issue will be ironed out before the government formally defaults on its debt Aug. 2.
Corporate Tax Reform

In response to another question after his speech, Geithner said the “central rationale for corporate tax reform should be to lower the statutory rate to a level more in the range of our major trading partners and to make that possible by dialing back, reducing, the range of tax expenditures that now, I'll say, litter the corporate tax code. And that's a sensible thing to try to do.”

“It's a very hard thing to do because it will change the relative effective tax rates for different companies, different industries, but it's an essential thing to do. Why should we want to live with a tax code where every year people don't know what is going to be the tax preference for a certain activity? Why would we want to live with a tax code where ultimately it's the quality of your lobbyist that determines a key part of the economics of your business? It makes no sense for the country,” Geithner said.

“This is worth trying to do. It's going to be politically difficult to do, but I think it's a sensible thing to do,” he said.

Geithner said any push for corporate tax reform would have to wait until a debt limit agreement is reached, which would rule out any proposal for the next two months. “I think we'd like to take a run at doing this ahead of the election, that means we have to start, but we also need to get this fiscal stuff in a better trajectory,” he said.
Debt Ceiling

Speaking one day after Treasury employed tools to prevent a default on U.S debt until Aug 2, Geithner said there is general agreement among congressional leaders to raise the debt ceiling, adding that it is better to raise the ceiling sooner than later to mitigate any concern Congress will ultimately not act.

He said the deal to raise the debt limit likely to be agreed upon by congressional leaders “should have a basic frameworks that locks in a declining path for deficits … with as large a down payment of specific savings across the core of government functions as we can, with an enforcement mechanism—a trigger—that will force the remaining balance of choices.”

Under the trigger outlined by the secretary, beginning in 2013, the U.S. administration would set a reduction target for the year and Congress would have approximately nine months to enact legislation to meet that fiscal target. If Congress cannot agree on legislation, then automatic cuts in spending and tax expenditures would go into effect for the following year.

The complete text of this article can be found in the BNA Daily Tax Report, May 18, 2011.