IPS Blog

General Electric to Pay Taxes: The Prank that Cost $3.5 Billion in Market Capitalization

(Image: Flickr / Jeff Turner)

(Image: Flickr / Jeff Turner)

“We want to get off on the right foot in Massachusetts,” said GE CEO Jeffrey Immelt. “We usually expect jurisdictions to pay for the privilege of hosting us in their community, state, or nation. But we’re taking a different approach.”

General Electric has decided to contribute $18,318 in taxes to the City of Boston, enough to cover the costs of one student in the Boston Public Schools.**

GE is relocating their global headquarters from Fairfield, Connecticut to Boston, Massachusetts after the city and state agreed to hand over more than $150 million in tax breaks and financial incentives. This is roughly $181,000 for each of the 800 employees that GE is relocating to Boston. Boston also tossed in a cool $100 mill to repair the Northern Avenue Bridge as part of G.E.’s relocation deal. Go big or go home, right?

So given all the gifts laid at the feet of Mr. Immelt by the City of Boston and Commonwealth of Massachusetts, why would he decide to chip in his fair share of taxes?

It all started with the busboy Immelt met during a meal at Legal Seafoods. Caleb Hannon, a junior at Boston Latin School casually brought up the the school system budget shortfall to Immelt while picking up the CEO’s lobster shells and refreshing his water glass.

“I heard about the school’s troubles and thought General Electric should chip in something,” said Immelt. “Everyone should do their part.”

“We’re moved by General Electric’s generosity,” said Boston Mayor Marty Walsh. “They are truly a corporate leader and we look forward to having them in Boston.” Walsh indicated hope that in the future G.E. might chip in for snow removal on public streets around their headquarters.

General Electric has historically gamed the tax system to keep their contributions extremely low, routinely paying little or no state or federal taxes.

A Real April Prank

The April Fools Day story above was inspired by a real prank on General Electric.

In April 2011, the YES Men and US Uncut issued a press release, allegedly coming from General Electric’s press office, announcing the company’s intention to pay taxes that the company had been dodging through the use of off-shore tax havens.

The Associated Press circulated the news that General Electric would pay a $3.2 billion tax refund to the U.S. Treasury. The faux release quoted G.E. CEO Jeffrey Immelt as saying the company “will furthermore adopt a host of new policies that secure its position as a leader in corporate social responsibility.”

Upon news of G.E.’s newfound religion on taxes, Wall Street investors punished the company, driving share prices down 1.6 percent from the day’s opening price. Over $3.5 billion in market capitalization evaporated in the first hour before recovering as the hoax was revealed.

General Electric was under scrutiny in 2011 for its aggressive tax avoidance after a New York Times expose revealed that despite $14.2 billion in global profits, including $5.1 billion from U.S. operations, the company claimed a tax refund of $3.2 billion.

For more information on the prank, watch this video of the news coverage:

Also check out 2011 radio interview with me and Andrew Boyd of US Uncut

**Facts distorted in the first part of this post in April Fools Day jest. Unfortunately, GE has not actually decided to pay their fair share of taxes in Massachusetts or Boston. Yet.

TurboTax is Lobbying to Make Filing Your Taxes More Difficult

(Photo: Flickr / Canadian Pacific)

(Photo: Flickr / Canadian Pacific)

The deadline for filing taxes is coming up soon and I haven’t quite found the time to sit down and get it done. Why not? Well, like just about everyone else in the country I find the process onerous and more than a bit tedious. Who can I blame for this annual annoyance? TurboTax.

Most would point to the IRS or Congress for making our tax code overly complex. But looking one step further, at who is pulling the strings behind these institutions and it’s clear that tax preparation companies are the real culprits.

Dylan Matthews at Vox recently put out an open call to boycott the leading tax preparation software, Turbotax. You probably recognize Turbotax by their countless ads currently running online, on television, and in print. Or perhaps because you’re one of the 30 million people who’ve used their service. They want to stress how much easier it is to file your taxes with them than trying to do it on your own. And that’s probably true—I’ve used their product and it worked fine.

However, it’s what they’re not saying in their ads that might make you want to join in on the boycott: They spend boatloads of lobbying dollars to ensure filing taxes is a pain in the ass.

Just how much are we talking? To give you just a small taste of how bad it is, consider that Turbotax’s parent company, Intuit, spent $13 million lobbying congress from 2011 to 2015 in an effort to oppose automatic tax filing. Of course, Turbotax is not alone. With them is H&R Block, another company I’ve used in the past. They spent over $7 million in just the past five years. And that’s just lobbying, not including campaign contributions.

Now you might be thinking, like I did, wait there’s a way to make tax time wicked easy? Yes, and it’s been around for decades with support ranging from Obama to Reagan. It’s called “The Simple Return” and simply requires the IRS to send you a pre-filled out return using the documents they already have. Depending on your deductions, you might have to do one more step or you might be done just by sending it back. Then you’re done. Seriously, finding a stamp might be the hardest part.

I can’t help lamenting how much less everyone would hate paying taxes if it wasn’t annoying. And I can’t help noting it’s not just these companies who are benefiting that people hate taxes. Like say, the anti-tax zealot Grover Norquist who famously wants to shrink government to the size he can “drag it in the bathroom and drown it in the bathtub.”  Or the millionaires and billionaires who benefit from the byzantine system of loopholes that enable them to avoid paying their fair share of taxes.

Taxes, it’s been said, are the price we pay for living in a civilized society. There’s no reason the way we pay taxes shouldn’t be civilized…and simple.

So, let me add one more voice of support for Dylan Matthews’ crusade against Turbotax. The boycott may or may not work, but I’m not giving a dime to the company that is actively working to make filing taxes harder. You shouldn’t either.

Kasich is No Moderate on Inequality

(Photo: Flickr / Gage Skidmore)

(Photo: Flickr / Gage Skidmore)

As media pundits and mainstream conservatives begin to realize that Donald Trump is beyond likely to be the Republican nominee for President, the search for a viable alternative remains fruitless. Throughout the race, Ohio Governor John Kasich has tried to present himself as just such a moderate anti-Trump.

The one problem with this framing (beyond the fact that voters have nearly universally rejected him): he’s no moderate.

That Kasich is actually a far-right conservative, not a moderate, is no shocker to voters in Ohio. They saw him enter the governor’s mansion in Ohio riding the 2010 Tea Party wave on a platform to “break the backs of organized labor.”

One of Kasich’s first actions in office was to repeal Ohio’s state estate tax, or inheritance tax, in his 2011 state budget. The tax only impacted the wealthiest 8 percent of Ohioans, those with assets over $330,000, yet it raised over $200 million in revenue. Because of the way the tax was structured, this hit local communities the hardest meaning towns had to cut back critical public services like public safety and emergency response.

ohio-tax-cut-graphic

Kasich replaced the estate tax with an increase in the state sales tax, shifting the burden of paying for public services disproportionately to the poor. In a move that represented little more than hollow pandering, Kasich included a 5 percent Earned Income Tax Credit, similar to the federal program. Unfortunately, the credit was non-refundable meaning those at the bottom of the income spectrum could not take advantage of it.

Kasich’s tax reform represented a huge shift in the tax burden from the top to the bottom—the poorest 20 percent actually saw their taxes go up. The biggest winners in his tax plan? The top 1 percent, who got an average tax break of $17,618.

Included in Kasich’s presidential tax plan is a provision to eliminate the federal inheritance tax like he did the state inheritance tax in Ohio. In his words, he wants to “kill the death tax”. Granted, Kasich is merely repeating the GOP supply-side talking points developed to hide the fact the estate tax only impacts the wealthiest 0.2 percent of families.

But it’s worth noting the would-be-funny-if-it-wasn’t-terrible irony that Kasich has supported an actual tax on death. In his state tax reform plan, Kasich proposed expanding the sales tax to include taxing services, including funeral services.

There’s much more in Kasich’s record as Governor that points to his far-right conservative views on taxes as well as just about every other issue. His time in Congress, as well as his time at the failed Wall Street behemoth Lehman Brothers, also provide a rich trove of data all pointing to the fact that Kasich is no moderate.

While the Republican Party continues to grapple with the reality of Trump as their nominee, and ultra-conservative Ted Cruz as the only potential spoiler, John Kasich has the appearance of a moderate alternative. His record, however, shows a politician far from moderate on inequality.

Did This Star CEO Deserve Mega Millions For His Work?

(Photo: Flickr / Intel Free Press)

(Photo: Flickr / Intel Free Press)

One of the high-tech world’s most fabled superstars has passed. Andy Grove, the long-time CEO at the chip-making colossus Intel, died earlier this week at age 79.

Grove’s death brought forth a rush of entirely predictable plaudits from Corporate America. Former General Electric chief Jack Welsh hailed him as a “courageous entrepreneur.” Grove, Apple CEO Tim Cook pronounced, “epitomized America at its best.” He rates, added Microsoft co-founder Bill Gates, “one of the great business leaders of the 20th century.”

“Andy,” summed up current Intel CEO Brian Krzanich, “made the impossible happen.”

Even, apparently, in death. Grove’s passing hasn’t just brought forth plaudits from plutocrats. The high praise has also come from some unexpected quarters. The American Prospect, a widely respected progressive journal that regularly challenges America’s corporate elite, has saluted Grove as a “high-tech visionary” and lauded “his creativity in reformulating problems and suggesting solutions.”

The corporate-skeptic community has actually been embracing Grove for quite some time. Back in 1996, for instance, the nation’s most visible critic of excessive CEO pay — corporate compensation consultant Grael Crystal — gave Grove what amounted to a free pass.

Grove had just cashed out $94.6 million worth of stock options from Intel, at the time the second-sweetest stock-option windfall in American history. Reporters rushed to Crystal for his reaction. They expected some outrage. They didn’t get it.

“I told the reporters,” Crystal would note later, “that Grove was one of my compensation heroes and that, if anything, he was being paid far too little for his magnificent contributions to the shareholders of Intel of which, I am happy to say — nay, ecstatic to say — I am one.”

A shareholder who spent $100 on Intel stock in 1987, Crystal went on to explain, would have seen that $100 grow, in just a decade, to over $1,800, a 34 percent annual compounded return. By contrast, the S&P 500 Index, over those same ten years, returned a mere 14 percent per year.

Any executive who creates such immense value for shareholders, analysts like Crystal believed then and still believe today, can hardly ever be overpaid. If an executive “performs” at an Andy Grove level, the nation has no choice but to recognize that superior performance and lustily cheer the reward.

We need, Crystal proclaimed after Grove’s $94.6 million payday, “to celebrate his triumph and pray that those turkey CEOs running the other companies in my investment portfolio call up Grove and ask him how he did it.”

The basic operating assumption here: Corporations owe their “success” to their chiefs. America’s future leaders imbibe this conventional wisdom, year in and year out, at the nation’s finest business schools.

“A business school case in strategy,” notes the British economist John Kay, “characteristically features a named CEO struggling, frequently alone, to resolve the fundamental issues of his company’s strategic direction.”

Opinion-leaders in the United States — and increasingly the world — have swallowed this heroic executive worldview whole. Even critics of executive pay like Graef Crystal have accepted, as perfectly legit, the right of “successful” executives to outsized fortunes.

But American chief execs themselves, interestingly, will sometimes acknowledge the contributions to corporate success that others can make, particularly when those others are about to become CEOs themselves.

In 1998, to offer up one example, Andy Grove stepped aside as Intel’s CEO and turned over the reins to Craig Barrett, the company’s chief operating officer since 1993. Barrett, Grove noted in announcing the move, deserved the credit for Intel’s chip-making prowess.

“Craig has been the architect of Intel’s operations throughout the last decade,” summed up a magnanimous Grove. “Craig keeps the Intel machine running.”

That observation, if accurate, does raise some questions. If Craig Barrett deserved such significant credit, then his boss, CEO Andy Grove, was clearly not single-handedly responsible for Intel’s success.

And if Andy Grove was not single-handedly responsible for Intel’s success, isn’t it also possible that Craig Barrett was not single-handedly responsible for the kudos that Grove so generously showered upon him? Isn’t it possible that behind Craig Barrett stood legions of hard-working, unheralded assistants?

And if those unheralded assistants did indeed deserve significant credit for Intel’s success, why did the rewards for that success go so disproportionately to Andy Grove?

In life, Andy Grove never seems to have seriously contemplated that question. With his death, maybe the rest of us should.

Happiness May Be More Meaningful Measure of Inequality

World Happiness Report, 2016.

World Happiness Report, 2016.

For a country with a population the size of Wisconsin’s, Denmark has figured surprisingly prominently in the U.S. presidential election debates.

In the very first Democratic debate last October, Bernie Sanders ignited a national debate over the tiny Scandinavian country’s economic model by saying we could “learn from what they have accomplished for their working people.”

In February, Denmark made U.S. political headlines again when Ted Cruz warned that if we elect Donald Trump, we would be liable to wake up one morning to find that the president had “nuked Denmark.”

Cruz didn’t elaborate on why he thought Denmark would be a particularly likely Trump target for nuclear destruction. Perhaps it’s because those Danes are just so darn happy.

According to UN World Happiness rankings released this week, Denmark comes in first, up from their third place showing in 2015. The United States ranks #13. At the bottom: Greece.

How do these folks measure happiness? The rankings are based largely on six factors:

  • GDP per capita
  • healthy years of life expectancy
  • social support (“If you were in trouble, do you have relatives or friends you can count on to help you whenever you need them, or not?”),
  • trust (as measured by a perceived absence of corruption in government and business),
  • freedom to make life decisions (“Are you satisfied or dissatisfied with your freedom to choose what you do with your life?”),
  • and generosity (as measured by recent donations).

The authors argue this broader measure of well-being is a more meaningful way to analyze inequality than income and wealth indicators. They find that people are happier in societies where there is less inequality of happiness.

Happiness might not necessarily be a good thing, though—that is if you’re Donald Trump and you’re running for president. Yahoo Finance recently ranked all 50 U.S. states according to an “anger index.” Trump is cleaning up in the angry ones, with a 91 percent win rate in states among the 20 angriest that have held primaries.

Happier voters aren’t going so much for the blustery tycoon. Trump has won just 4 of 11 primaries (36 percent) that have been held so far in the 20 least-angry states.

So happy Danes, beware.

Do Populist Candidates Appeal to Affluent Voters?

(Chart: 24/7 Wall Street, Federal Reserve data)

(Chart: 24/7 Wall Street, Federal Reserve data)

The 2016 presidential primary elections — now essentially halfway over — have placed income and wealth inequality right at the forefront of America’s political discourse.

The entire Bernie Sander platform rips the gains of America’s rich at the expense of low- and moderate-income people and advocates for comprehensive economic reforms that aim to narrow the nation’s vast economic divides. And billionaire Donald Trump, in his stab at a populist pitch, regularly blasts the impact of globalization on average American workers.

Mainstream media analysts have generally categorized white working class voters as Sanders and Trump supporters. Neither candidate, the conventional punditry suggests, would seem to have an appeal to more affluent voters.

But this assessment, our new analysis of voting patterns indicates, may not be accurate.

We looked at voting results from the most affluent county in each of the 2016 primary states where we now have data. Candidates traditionally pay considerable attention to counties like these since voter turnout, the research shows, strongly correlates with household family income.

These most affluent counties all have higher household incomes than the national median. Residents in the wealthiest among them — Virginia’s Loudon County — have more than double the income of the nation’s typical household. The full list:

How do the presidential candidates fare in these higher-income counties? Using CNN exit polling, we’ve tabulated results from the Republican and Democratic contests for most of the states where primary voting has taken place. No county data exists for the Minnesota and Maine caucuses, and Kansas and Alaska offer congressional district instead of county voting breakdowns.

On the Republican side, Donald Trump took most of these most affluent counties.

Republican Candidate        Victories
Donald Trump (12) Beaufort County, SC; Blaine County, ID; Madison County, MS; St. Johns County, FL; Shelby County, AL; St. Charles County, MO; Livingston County, MI; Honolulu County, HI; Rockingham County, NH; Kendall County, IL; Nantucket, MA; Forsyth, GA
Ted Cruz (6) Canadian County, OK; Wake County, NC; Ascension Parish, LA; Elko County, NV; Oldham County, KY; Rockwall, TX
John Kasich (2) Chittenden County, VT; Delaware County, OH
Marco Rubio – campaign suspended (4) Williamson County, TN; Benton County, AR; Dallas County, IA; Loudoun County, VA

On the Democratic side, we see a much closer race between Hillary Clinton and Bernie Sanders.

Democratic Candidate        Victories
Hillary Clinton (13) Benton County, AR; Beaufort County, SC; Madison County, MS; St. Johns County, FL; Shelby County AL; Dallas County, IA; Rockwall County, TX; Williamson County, TN; Delaware County, OH; Loudoun County, VA; Wake County, NC; Ascension Parish, LA; Forsyth County, GA
Bernie Sanders (10) Chittenden County, VT; Sarpy County NE; St. Charles County, MO; Elko County, NV; Livingston County, MI; Rockingham County, NH; Kendall County, IL; Nantucket County, MA; Douglas County, CO; Canadian County, OK

Sanders scored electoral success with affluent voters in geographic areas as diverse as Nevada, Michigan, and Massachusetts. His anti-economic inequality message has resonated with a diverse array of voters. In Michigan, CNN exit polling shows, Sanders actually tied Clinton with voters earning over $100,000 and won the state’s highest-income county.

Donald Trump’s strong showing in the wealthy suburbs also suggests that his voter base goes beyond the working-class base that the standard media narrative so emphasizes. Trump’s message, riddled with anti-immigrant and offensive language, has found an audience with wealthy voters from Nantucket County in Massachusetts to Honolulu County in Hawaii.

What can we take from these results? On the one hand, the results suggest that a broad coalition of Americans — including many Americans of wealth and privilege — stands ready to support a pro-worker and pro-equality economic agenda that will uplift all Americans.

On the other hand, the results also suggest that ethnic and racial insensitivity and worse runs all the way up America’s economic ladder.

Another CEO Pads His Own Pockets While Cutting Worker Pensions

(Photo: Pixaby)

(Photo: Pixaby)

Governors and mayors around the country have been putting forth proposals to cut government worker pensions. They call these pensions “unaffordable.” So far federal employees have avoided this onslaught. But that’s changing. The Tennessee Valley Authority’s board has just approved a modified version of a cutback proposal offered by TVA CEO William Johnson.

TVA’s board, the New York Times reports, approved a plan on March 3 that would shift federal workers out of a secure defined benefit pension plan — that would provide a guaranteed monthly check for the rest of their lives following retirement — into a 401(k) plan that would have  employees bearing the risk of falling investment markets. The plan would sharply lower the TVA’s pension costs, but deny employees benefits they had earned.

The Tennessee Valley Authority once symbolized the shining successes of President Franklin D. Roosevelt’s New Deal. TVA brought electricity and economic development throughout Tennessee and to parts of Kentucky, Alabama, and Mississippi, some of the poorest parts of the nation’s south.

TVA better symbolizes today the excesses of Corporate America. TVA CEO Johnson pulled down $6.4 million in 2015 personal compensation. Earning 16 times more than President Obama, William Johnson may be the nation’s highest-paid federal employee.

But the real stunner comes from CEO Johnson’s retirement assets. In less than three years on the job working for TVA, William Johnson has accumulated $3,567,489 in his company pension account, according to TVA’s 10-K report filed with the U.S. Securities and Exchange Commission.

Johnson also had an additional $305,994 in his TVA deferred compensation account, a special account for corporate executives that, unlike 401(k) plans for workers, has no limits on the amount of compensation that can be set-aside tax-free each year.

This combined $3,873,483 in Johnson’s workplace retirement savings, if invested today in an annuity, would deliver CEO Johnson a check for $23,318 each month from age 65 until the time of his death. And Johnson’s pension will grow with each additional year he serves the TVA.

There are lots of CEOs in the private sector who as members of the “I’ve Got Mine Club” don’t think twice about padding their own pockets as they cut workers job and retirement security. But we should expect more from the leader of such an important federal agency.