GE 'Zero' U.S. Tax Furor Reignites Calls for Reform

Revelations that General Electric paid no U.S. taxes last year, despite bagging a $14 billion profit, have reignited debate in Washington about tightening up corporate levies.

No one, it seems, is very fond of the U.S. corporate tax system. Businesses bemoan the 35% minimum rate that is among the highest in the world, and taxpayers are furious at how easily big firms seem to pay much less.

But in recent months the issue has been overshadowed by multiple global crises and a fierce argument over government spending.

It resurfaced with a bang last week, when it emerged that manufacturing titan GE paid no taxes to the U.S. government in 2010. "GE did not pay U.S. federal taxes last year because we did not owe any," spokeswoman Anne Eisele said, rejecting suggestions the United States' fourth largest company was gaming the system.

But as millions of Americans struggle to make ends meet, and the Federal government fails spectacularly to do the same, that disclosure has caused consternation.

"The wealthiest Americans and most profitable corporations must do their share to help bring down our record-breaking deficit," Democrat-allied Senator Bernie Sanders said on March 27.

Supporters of reform, from big business to the White House, are re-polishing their arguments. The White House argues an overhaul could help bring down unemployment. Big business agrees a lower rate would aid growth. Despite this broad coalition, experts say the prospect of a quick deal is illusory. They argue the government has few options if it wants to substantially lower the minimum rate and not add to the deficit: Expand the number of people paying corporate taxes, or get more revenue.

"If you want to get the corporate tax rate down from 35% to 28% -- that is a 20% cut in the tax rate -- you have to have increase the tax base by 20%, or offset it," said Alan Auerbach, an economics professor at the University of California, Berkeley. "That is a big increase."

President Barack Obama has leaned heavily toward closing loopholes, arguing that "revenue neutral" reform must spell an end to some antiquated, but much-loved, tax breaks.

"I don't think there is anyway to do this without winners and losers," said Seth Hanlon, the director of fiscal reform at the Center for American Progress.

Cutting roughly four billion dollars a year in oil and gas sector subsidies are a regularly cited example of cuts, so too is tightening manufacturing deductions that are used well beyond the sector.

But the most lucrative target for the Internal Revenue Service may be cracking down on overseas tax shelters. Under current rules U.S. firms pay tax on foreign subsidiaries only when profits are sent back to the United States. Treating subsidiaries as domestic businesses for tax purposes could spell vastly higher tax bills for firms like GE.

While the company says much of this year's tax savings come from losses at GE Capital, even before other write-offs its effective U.S. tax rate was just over seven percent -- thanks in part to some profits being kept overseas.

"If you just look at our statutory rate, it's high," said Annette Nellen, an accounting professor at San Jose State University, but "the effective tax rate for many companies is a lot lower."

Outrage or not, tough bargains will need to be reached if a reform deal is to be reached.

"It is going to depend on who all steps forward to say 'oh no, no, we can't get rid of the research credit, we can't get rid of that work opportunity tax credit,'" said Nellen. "If you get enough people stepping forward to say you can't get rid of this stuff, then Congress I think will just step back and say, we'll leave the rate where it is."