TheMillerCircle.org

This year, Americans have been outraged to learn that General Electric, one of the largest corporations in America,  paid no U.S. Federal income tax and in fact got a $ 3.2 billion tax rebate. According to the article in the NYT (link above), GE has managed to reduce their Federal Tax burden to about 1/3 of what other large corporations pay and, through the creation of intense lobbying for favorable changes in the tax code, GE and other corporations can apparently file as  individuals, which has collectively “pushed down the corporate share of the nation’s tax receipts — from 30 percent of all federal revenue in the mid-1950s to 6.6 percent in 2009.”

This GE tax pill seems even harder to swallow when you realize that President Obama has designated GE’s chief executive, Jeffrey R. Immelt, as the chairman of the President’s Council on Jobs and Competitiveness: Obama has announced that he would like to change the corporate tax laws, to eliminate special tax loops and even the playing field without raising additional corporate taxes. But, with Immelt as the chair of a committee that will surely make recommendations on corporate taxes, many in public service are talking about a fox in the hen house.

But how did GE manage to get its Federal Tax burden reduced to such a low level and actually get rebates, when hard working Americans face a challenging tax bill every year and pay taxes at far higher rates, as a percentage of their income, even during those years when GE does pay taxes (GE claims they will pay U.S. Federal taxes next year)? When you think about the history of corporate tax breaks, you have to begin with Ronald Reagan and when you think of GE, you especially have to invoke the Ronald Reagan years because Reagan worked for GE, who, with the help of Lemuel Boulware converted him from a New Deal Democrat into a flaming conservative Republican who was ready, willing and able to do the bidding of GE and the other corporate giants of America, as soon as he stepped into the White House. William Kleinknecht, author of “The Man Who Sold the World: Ronald Reagan and the Betrayal of Mainstreet America,” explains the roots of Reagan’s generosity towards GE in particular, as well as American corporations in general.

Reagan’s huge tax cuts to corporations, that went into effect when he took office in 1981, were one of the changes that immediately created huge government debt and alarmingly raised the interest rates, all of which helped to generate the serious recession that we had in those early Reagan years. But, as Kleinknecht points out, for the three decades prior to Reagan’s Presidency, the portion of national income invested in industrial plant and equipment had been well over three percent, but thanks to the Reagan cuts, this parameter of business investment in itself, averaged only 2.3 percent during Reagan’s years in the White House. The combined reductions in corporate taxes and Reagan’s anti-government appointees to the Antitrust Division of the Justice Department (William Baxter) and the Federal Trade Commission (James Miller III), opened up the flood gates for corporate merger mania which is still with us today. Instead of encouraging manufacturing companies to invest more in plant equipment and modernizing techniques, corporations were now given the green light for one company to spend their new wealth on buying out their competitors. This was one factor that began to show up in American manufacturing as an inefficiency, which the Reagan government blamed on too much regulation, though this concept was later refuted by studies which revealed a failure of investment and plant modernization as the most serious flaw, rather than over regulation of industry. But such notions helped to create the deregulation craze that to this day, drives the Republican Party–another legacy from the Ronald Reagan era.

So, with the new corporate era of mergers and putting American companies into a huge debt burden (expensive corporate mergers could not be fully financed by gains in tax burden relief, so companies stopped investing in themselves and started going into debt to acquire other companies and enhance profits through that pathway, which also led to massive layoffs but helped to instill short-term thinking into the DNA of American industry), how in particular did GE make out? GE had generously hired Ronald Reagan at a time when his acting career was on the wane and in the eight years of working for them, and hosting GE Theater,  he visited 139 GE plants to give pep talks to employees and the local Chamber of Commerce organizations. One of his favorite themes in those days was the unfair tax burden placed on actors. These visits and talks served as the vehicle which sharpened Reagan’s “government is the problem” rhetoric. Since Reagan felt a special indebtedness to GE, it is not surprising that the company was given special treatment once he was elected to the Presidency. GE in fact was one of the biggest corporate beneficiaries of the 1981 tax cuts. From Kleinknecht’s book (page 142, hard cover edition, 2009) “In the first three years of the Reagan administration, the company paid no income tax. In fact, it was given tax rebates during that period totaling $283 million, despite pretax profits of more than $6.5 billion. Citizens for Tax Justice, a liberal advocacy group in Washington, estimated that the 1981 tax law yielded well in excess of $ 1 bllion for GE over a half-decade. None of these revenue gains were funneled into new investment or jobs for Americans. Instead, the company shed fifty thousand jobs in the early 1980s through layoffs, attrition and the selling off of subsidiaries. At the same time, the tax windfall helped General Electric pay for a welter of corporate acquisitions. Among the companies GE acquired in the period were Utah Construction, RCA and NBC.” Do you think NBC news is anxious to talk about GE’s huge tax breaks?

Of course it wasn’t just the corporate merger and acquisition frenzy that characterized the Reagan years. Included in Reagan’s attempt to turn out the lights on the New Deal, was the staffing of Federal regulatory agencies, such as the Securities and Exchange Commission, with corporatist business executives, who refused to sound alarms to the unsavory deal making on Wall Street (which exceeded any rational analysis based on creating a public good). The relaxation of rules and the sudden increase in corporate wealth led to a frenzy of mergers, hostile takeovers, new wealth for Wall Street lawyers and banks and the excessive profit making that was created when corporate America was encouraged not to share increased wealth from productivity gains, but instead plow the gains into enhancing the value of company stock and their own bloated salary compensation mechanisms (such as deferred stock options with a starting date adjusted after the fact to coincide with optimizing the benefit). Republicans like to talk about the fact that Ronald Reagan didn’t actually pass a lot of anti-regulatory legislation: he didn’t have to, because he emasculated the regulatory agencies in existence, by staffing them with people who destroyed their mission.

We watched excessive greed and Wall Street criminality during the GW Bush years push us into the worst economic meltdown since the Great Depression. But the seeds for what we now think of as the second “Gilded Age,” got their robust start during the early years of Ronald Reagan’s Presidency and they carried forward, almost unabated, until we are left with a financialized society that doesn’t know how to hit the reset button.

RFM