General Electric Co.’s tax rate will rise this year and beyond after $32 billion of losses absorbed by the company’s financial-services business pushed down rates in 2008 and 2009, Chief Executive Officer Jeffrey Immelt said.
“We got socked with losses during that time,” Immelt said yesterday in a speech at Rice University in Houston. “Our tax rate is going to be much higher in 2011 and the future.”
The New York Times reported March 24 that GE had a tax bill of zero in 2010, an assertion that the Fairfield, Connecticut-based company said on its website is misleading, in part because of its characterization of tax rebates, benefits and so-called tax loss-carryforwards. The complexity of the U.S. tax system needs to change, Immelt said.
“Rarely does business speak with one voice, but they do on taxes,” Immelt said. “Our system is old, it’s outdated, it’s complicated -- and all of us are for closing the loopholes. Absolutely, a lower corporate tax rate, and a territorial system, just like our global competitors have.”
The public debate on U.S. corporate tax policy following the Times story has ranged from satiric bits on TV’s “The Daily Show With Jon Stewart” to extensive responses on GE’s website, GE Reports.
The company is the world’s largest maker of jet engines, turbines for power plants, medical-imaging equipment and locomotives. Its GE Capital division includes credit cards, lending to midsize companies and airplane leasing.
Nuclear Power’s Future
Immelt also said he didn’t yet know whether the nuclear power industry’s growth will slow further after what he called “the devastation in Japan,” saying “we should study the industry to make it safer.”
GE spent $4.18 million last year on outside tax lobbyists, more than any other company.
The lobbying, along with tax-planning strategies, help GE keep its effective tax rate low. According to company filings, GE’s consolidated tax rate from 2005 through 2009 was 11.6 percent, compared with the 35 percent top statutory tax rate for U.S.-based corporations and the 30.5 percent average for companies in the Standard & Poor’s 500 Index.
U.S. tax policy has created “a bad system,” Immelt said. “We will advocate our case in that system. We are an investor-owned company in that regard, we do it legally and we do it completely transparently within the law.”
GE posted net income of $11.64 billion in 2010, $11.03 billion in 2009 and $17.4 billion in 2008.
$2.67 Billion in Cash
Taxes paid, referred to by accountants as “cash taxes,” is the amount actually paid in a given period or tax year, shown in a company’s cash flow statement filed with the U.S. Securities and Exchange Commission. The company paid $2.67 billion in cash for taxes around the world in 2010, including a “substantial” amount to the U.S. government, according to its SEC filing and GE Reports.
The so-called effective tax rate reflects taxes that were incurred in a certain period, such as a fiscal or calendar year, though not necessarily paid in that period. GE’s effective tax rate in 2010 was 7.4 percent, in part because of losses at GE Capital stemming from the financial crisis.
GE Capital’s losses pushed the parent company’s tax rate below what it called historic levels in the “teens to more than 20 percent” before the financial crisis took hold, GE said this week.
When GE files its U.S. tax return for 2010 by September, the company expects there to be a tax liability. That may be offset by credits and benefits.
Immelt, named in January to lead President Barack Obama’s outside group of advisers on job creation and competitiveness, has lobbied for more manufacturing in the U.S. The council will focus on strengthening small businesses first, Immelt said.
Other priorities will include leadership in technology, research and development, bolstering U.S. exports and developing a plan to produce thousands more engineers each year. The group will concentrate its efforts in 90-day increments, he said.
Asked about the future of nuclear power following the earthquake and tsunami in Japan, Immelt said the industry had been moving slowly.
“I actually think people have been fairly non-hysterical about the crisis,” Immelt said. “People should learn about the crisis as it goes on, it will be studied by the NRC and all the other regulators. We should study the industry to make it safer.”
Before the crisis in Japan, the pace of construction of new nuclear power plants was slow, in part because of the $6 billion to $8 billion cost to build a facility and low natural-gas prices.
Part of the Mix
The only “real nuclear build in essence was in China,” Immelt said. “The question is what happens next. We should be thoughtful, but at the same time I think we should be wanting to keep nuclear as part of the mix as part of the long term.”
GE’s revenue from its nuclear venture with Hitachi Ltd. provided about $1 billion of its $150 billion in total sales.
GE is continuing to put the “full force” of its employees and engineering teams into supporting Tokyo Electric Power Co., which runs the damaged Fukushima Dai-Ichi plant, said GE Vice Chairman John Krenicki. The facility’s reactors are based on a four-decade-old design from GE.