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September 24, 2023

Here Are a Couple of Corporations Whose Taxes (or Lack Thereof) Are Actually Worth Bitching About

Over the weekend, I aired some grievances that I've had with The New York Times and its tax shaming. One commenter on the thread mentioned a Times article on AIG from a few months back that exposed that companies tax dodgy ways. I had a chance to dig it up today, but it's worth noting that article was written by DealBook's Andrew Ross Sorkin and it was published a week after AIG reported over $19 billion in profit for the 4th quarter. A phony profit that ARS sniffed out right away:

[I]f you dug into the numbers, it quickly became clear that $17.7 billion of that profit was pure fantasy — a tax benefit, er, gift, from the United States government. The company made only $1.6 billion during the quarter from actual operations. Yet A.I.G. not only received a tax benefit, it is unlikely to pay a cent of taxes this year, nor by some estimates, for at least a decade. The tax benefit is notable for more than simply its size. It is the result of a rule that the Treasury unilaterally bent for A.I.G. and several other hobbled companies in 2008 that has largely been overlooked. This rule-twisting could deprive the government of tens of billions of dollars, assuming the firm remains profitable. The tax dodge — and let’s be honest, that’s what it is — also will most likely help goose the bonuses of A.I.G.’s employees, some of whom helped create many of the problems that led to its role in the financial crisis.
Sorkin goes on to explain that this was possible by the Treasury issuing "notices" that allowed AIG to use its billions in net operating losses from 2008. Ordinarily, if a control of company changes hands, in this case from the shareholders to the government, the losses cannot be used. The Treasury argued that because, "[it] did not consider the rescue to be a traditional takeover. The original law preventing companies from using the losses after a takeover were intended to prevent corporations from buying failing companies with lots of losses simply for the tax benefits."
And the same goes for General Motors. In an article in this past weekend's Detroit NewsDavid Shepardson reports that the same games are being played:
A series of Treasury Department rulings since 2008 let GM use $18 billion in losses — from the "old GM" that was left behind in bankruptcy — to offset any profits. GM spokesman Jim Cain said the automaker pays "significant" state income taxes, but because of its prior losses doesn't incur federal tax liability. "We did not pay federal income tax last year," he said. […] GM disclosed Thursday that its effective global tax rate for 2012 will likely be 12 percent to 13 percent, equal to the just-reported first quarter. That 2012 rate is up from a previous estimate of 10 percent. The automaker's chief financial officer, Dan Ammann, said the rate could still change "due to variations in country-specific profitability and tax liability." GM had credits totaling $16 billion at the end of 2011, which means it can offset about $48 billion in future income.
So to recap: the article by Charles Duhigg and David Kocieniewski exposed Apple – a profitable company ON ITS OWN – gaming the tax system by legal methods, while Sorkin and Shepardson reported on companies that are gaming the tax system with the help of the government. It's pretty surprising that the Times (with the exception of the Business section) seems confused about which story is important to taxpayers.


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