A furor has developed in the blogosphere and on the Internet around the announcement that General Electric (GE) and other corporations paid zero U.S. taxes in 2010. GE produced $5.1 billion in U.S. profits, and $14.2 billion in global profits, but garnered a $3.2 billion credit on U.S. taxes because of loss carryovers from its GE Capital finance arm.
Former U.S. Senator Russ Feingold (D-WI), via his group Progressives United, with the support of MoveOn.org have launched a campaign to urge the immediate removal of GE CEO Jeffrey Immelt as chairperson of the Presidential Council on Jobs and Competitiveness. A Washington Post blog commentary penned by Zachary Goldfarb provides a succinct overview of the current furor.
Supply Chain Matters in a commentary in late January applauded the decision of President Obama to have Immelt chair the commission. We continue to support that decision and we urge others to do so as well, even with the current furor related to corporate taxation. The following is our logic.
Our previous commentary also made specific note of blog commentary from former U.S. Secretary of Labor, Robert Reich who stated that the prosperity of America’s businesses has become disconnected from the prosperity of most Americans. Mr. Reich also noted in a further commentary that profits of U.S. corporations are soaring largely because sales of foreign-based operations are booming while costs in the U.S. have been reduced because of lower payrolls. Mr. Reich’s argument was that profits of U.S. based corporations has little to do with the quality and quantity of jobs that are subsequently created in the U.S., with perhaps a reverse relationship.
Now that more evidence, in the form of zero tax bills, has come to light, some like Senator Feingold want to make an example of Mr. Immelt. The facts are that not having to pay taxes in 2010 is not just limited to GE. Senator Bernie Sanders (I-VT) issued a press release noting that quite a few U.S. corporations are in the company of GE. Some of these corporations were the beneficiaries of previous government bailouts or assistance. Having armies of lobbyists, tax lawyers and accountants is not confined to a single multi-national.
We suggest that Senator Feingold and his followers take a step back and view the entire forest, especially in the light of Mr. Reich’s remarks.
There are two forces at play here, and they should be differentiated. The Presidential Commission has a very critical mandate, and time is of the utmost essence. Mr. Immelt understands manufacturing, product innovation and how important supply chain capability contributes to jobs and competiveness. He also has a wide range of contacts among his peer multinational CEO’s. To replace Mr. Immelt at this point is counterproductive, and adds even more delay. After all, which manufacturing-centric corporate CEO would be willing to step into this role in the light of both this controversy and dysfunctional political climate occurring in Washington? Especially since so many multinationals have had their cash balances enriched these past months, not to mention healthy CEO bonuses.
A far more productive step at this juncture is to allow the embarrassment of healthy margins, profits and tax benefits to continue to see the light of day, and force this Commission to produce results with a far heightened sense of urgency. That urgency, in a crazy sort of way, would be to actually get serious about strategy and job growth because it stops the current public relations debacle.
Readers may recall that this commission was formed from the past perception by some that President Obama was perceived by many to be ‘anti-competitive’, and there needed to be a corporate voice within the Administration. The Council on Jobs and Competiveness has a business leader, and has felt “heat in the kitchen” Rather than remove the Commission head, up the ante and call the bluff.