General Motors shares are down on Monday after Goldman Sachs evaluated them. The photo of the folder shows the GM logo. (Photo: Paul Sancya, AP)
Similarly, Ford Motor Co. has only paid US income tax for three of the last 10 years, based on filings with the Securities and Exchange Commission. According to one economist, each company has received tax refunds of about $ 450 million since 2009, based on the returns.
According to GM's latest 10K report, the company is expected to repay $ 104 million to 2018.
The two companies have made profits totaling more than $ 100 billion over the last 10 years.
This reality of the US tax code led to the recent publication of a message in Axios and a sneaky tweet from former US Secretary of Labor, Robert Reich, comparing the heavy repayments owed by GM and other companies with increasingly modest repayments of Uncle Sam in 2019, claiming that it is "more socialism" for the rich. "
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We asked economists to solve this problem.
First, comparing corporate income tax to personal income tax is "not exactly an apple to an apple," said Charles Ballard, professor of economics at the Michigan State University.
"But Reich points out that the benefits of corporate tax cuts primarily benefit high-income individuals," said Ballard, "It's a trend that dates back to the late '70s and early' 80s. . "
First progressive period
Reich's tweet is "grossly misleading," said Jon Gabrielsen, an economist who consults automakers and automakers.
"For most people, personal income taxes only apply to events that have occurred in a single year, while corporate taxes collected during the course of of the same year may have the same consequences as the events that occurred ten years ago, "said Gabrielsen.
Gabrielsen noted that corporations pay hundreds of millions of dollars in local, state and other taxes. It is only at the federal level that most are entitled to a break.
The corporate income tax was created in 1909 to mark the beginning of the progressive era of monopoly control. It was then integrated with the New Deal in the 1930s, said Ballard.
"It was a reaction to the golden age, at the time of the robber barons," Ballard said. "It was an attempt to control the excesses of inequality and great wealth."
But US tax policy has reversed over the past 40 years and is now benefiting the wealthiest, Ballard said. Last year, the US corporate tax rate on revenue generated in the United States went from 35% to 21%, he said. In the 40s and 60s, the rate was 53%, said Ballard.
In the United States, corporate income tax generated outside the United States is now nil, compared to 35% before 2018, said Ballard.
GM Income Tax
There are several reasons why GM has not had federal income tax and has received rich repayments over the last decade.
First, US tax legislation allows companies to deduct past losses to offset current profits. That's what's called "net operating loss carry forwards," Gabrielsen said.
The idea behind these "loss carryovers" is to help businesses recover from their difficult years in order to continue to create jobs. A large number of companies use such credits, including the parent company of Free Press, Gannett, in recent years.
In GM's case, she lost $ 86 billion between 2005 and 2009 before entering federal bankruptcy protection and receiving a government bailout, which eventually cost about $ 10 billion. to taxpayers. Since 2009, its pre-tax profits have been approximately $ 69 billion. GM has not won as much as she has lost.
Secondly, the tax code also grants credits to companies investing in their infrastructure, research and development and pensions.
In the case of GM, R & D invests around $ 7.5 billion a year. In fact, from 2010 to 2010, GM spent $ 66 billion on research and development.
The US tax code offers such incentives to help businesses stay viable to create jobs and boost the economy, said Ballard and Gabrielsen.
The result for 2018 for GM is a $ 104 million tax refund on profits of $ 11.8 billion. GM will probably receive the payment in 2020.
GM would not indicate when its operating loss carryforwards could be exhausted. However, GM's former chief financial officer, Chuck Stevens, said last year that because of GM's tax credits, the company would not pay any US income tax "for several years".
GM declined to comment on Reich's tweet or other articles, but in an email to the Free Press: "We continue to invest heavily in R & D and manufacturing to strengthen our business and the communities we live in. GM pays taxes accordingly with all local, state and federal laws. "
Gabrielsen stated that most companies do not have an expiry date for the use of net operating loss carryforwards as it is unclear how much their business will earn in the years to come. As a result, the company can not know how many deferrals it will need each year to offset taxes.
In addition, as the auto industry is cyclical, when a car manufacturer will no longer have enough loss carryforwards, it could plunge back into losses and "get a considerable amount in addition to its deferrals." net operating losses for the next cycle of increase, "said Gabrielsen. .
At Ford, tax laws have benefited federal income tax over the last 10 years.
From 2009 to 18, the government got $ 461 million more in tax refunds than in taxes, Gabrielsen said. He pulled that total of Ford's 10K deposits, also calculating that the company had a total pre-tax income of $ 47 billion in the United States for the period.
Ford refused to confirm or challenge this figure.
SEC filings indicate that for 2016 and 2017, Ford received $ 122 million and $ 125 million in repayments, respectively. Since 2009, Ford has paid federal income tax of $ 4 million in 2012 and $ 75 million in 2015 and owes $ 75 million in 2018.
The big ditch
Fiat Chrysler cars are a bit mysterious because they are incorporated in the Netherlands. Therefore, the closest file resembling a 10-K is called a 20-F, a similar but not identical form. The FCA also did not release its financial data until 2012. Fiat Chrysler was created as a result of a government bailout and bankruptcy operation in 2009.
FCA's total net tax expense amounts to € 4.6 billion for 2016, 2017 and 2018 and covers various regions. His tax on the total profit paid for these years was 1.9 billion euros, as stated in his 2018 paper on Form 20-F. The difference represents deferred tax payments resulting from tax deductions such as depreciation. FCA has not broken down its US tax expenditure.
Ballard of the MSU said that the argument that companies would get the credits and loss carryforwards to keep them viable is reasonable.
"It would not have made sense to try to get an extra income from GM in 2009 because there was no income to be had," he said.
But he said that it was also reasonable to ask if the benefits should be more limited.
"My takeaway is mixed. The fraction of federal government revenues that are paid by corporate taxes has gone down a lot, and it's true that we do not want to impose punitive taxes on companies because they do a lot of work, employ people and make products, "said the minister. Ballard. "But the long-term trend has been to benefit high-income people."
Reich is a Liberal, so Ballard said, "I'm not at all surprised to say that. He would argue for higher taxation of corporations and high income individuals, and that is one of the big splits of our policy. "
Contact Jamie L. LaReau at 313-222-2149 or [email protected]. Follow her on Twitter @Jlareauan.
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