G.E. and U.S.A. are Rent-Seeking BFFs

March 24th, 2011

Two pieces to compare and contrast the BFF public choice relationship between the United States and G.E.

First, from the Times, an article titled G.E.’s Strategies Let It Avoid Taxes Altogether:

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 bespectacled, 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.

Second, an opinion piece by John Stossel, titled The Cozy Government Business of Handing Out Favors to Folks With Connections:

In America today, the biggest recipients of handouts are not poor people. They’re corporations. . . .  “General Electric is structuring their business around where government is going … high-speed rail, solar, wind. GE is lining up to get what government is handing out.”

Businesses love to have government as their partner. There’s safety in it. Why take chances in a marketplace full of fickle consumers and investors, when you can get secure money and favors from the taxpayers? It’s an old story, and free-market advocates as far back as Adam Smith warned against it.

The public choice relationship between the United States and G.E. is textbook rent-seeking, eerily reminiscent of Taggart Transcontinental from Atlas Shrugged. Build exactly what the government wants, receive massive subsidies from the government, and pay no taxes. What a wonderful business model? Meanwhile highly effective business models that do not fit into the government’s agenda (think Rearden Metal or Wal-Mart) receive no such subsidies or tax breaks, and are effectively competing at a disadvantage. Frankly, I’ll take Rearden Metal over a ride on the Taggart Transcontinental any day.