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GE tax affairs put Immelt in political spotlight

By Stephanie Kirchgaessner in Washington
Published: April 1 2011 23:27 | Last updated: April 1 2011 23:27

On the day that he announced that Jeff Immelt would chair a new White House advisory committee on jobs and competitiveness, Barack Obama said that General Electric and its chief executive had “something to teach business all across America” about competing in the global economy.
America had to return to the principles of inventor and GE founder Thomas Edison, the US president said at a GE plant in Schenectady, and “nobody understands this better than Jeff Immelt”.

But today, about two months later, the White House has been forced on the defensive about the choice after reports about GE’s aggressive tax planning strategies and accusations that the group – which made $14.2bn in profits last year – did not pay a cent of tax in 2010.

Indeed, the picture of GE painted by a recent article in the New York Times seemed to exemplify critical remarks by Mr Obama in his State of the Union address this year, when he derided the “parade of lobbyists” who had “rigged the tax code to benefit particular companies and industries”.
“Those with accountants or lawyers to work the system can end up paying no tax at all,” Mr Obama said. “But all the rest are hit with one of the highest corporate tax rates in the world.”

Mr Immelt himself defended GE’s practices in a speech this week, saying that like all Americans, the company sought to minimise its taxes and that it would return to a normalised rate after the first quarter of this year. GE dismissed the accusation that it had not paid any US tax in 2010 as “particularly distorted and misleading”.

The White House has steadfastly defended the choice of Mr Immelt, though it acknowledged this week that Mr Obama shared the “What the heck?” sense of frustration felt by many average Americans that one of the country’s largest corporations could escape the tax man.

“The president did not create the jobs council so that he could have a lot of people who agree with him on every issue sit around a table and tell him how much they agree with him on every issue,” said Jay Carney, the White House press secretary.

A White House official said that deliberations over proposed changes to the tax code, which would close loopholes and bring down the overall tax rate, were being led by Treasury secretary Tim Geithner. The special tax breaks that have benefited GE were passed by previous administrations, the official added.

The choice of Mr Immelt seemed a good one in January, a time when the White House was working hard to mend fences with the business community. Perhaps no other large American company’s drive for profit – in areas like infrastructure, clean energy, and advances in healthcare – seemed more aligned with Mr Obama’s own policy goals.

But the choice was problematic from the start for some on the left and Tea Party activists on the right, who accuse GE of being a big outsourcer of jobs oversees, on the one hand, and a shameless beneficiary of “corporate welfare” on the other.

“The thing I was baffled by is that under Immelt’s helm, GE has increased global employment but closed 25 factories here. Yeah, they have brought back a bit of work but it’s a trickle,” says Scott Paul, executive director of the Alliance for American Manufacturing. “If this was part of strategy to do outreach to the business community, maybe it checked that box. But in terms of having the nation’s leading outsourcer as your chief adviser on jobs, that was a failure.”

Gary Sheffer, a spokesman for GE, pointed out that only a very small portion of the company’s revenues come from US government work, about 4 per cent. GE strenuously denied claims that it is an “outsourcer” of jobs, saying it planed to add 16,000 high-tech jobs in the US over the next two years. Excluding businesses it has sold, such as NBC, its US work force has expanded over the last ten years, Mr Sheffer said.

This week, MoveOn, the Democratic activist group, and former liberal senator Russ Feingold have called for Mr Immelt’s resignation from the jobs council.

Andy Stern, a former labour leader who frequently advised Mr Obama during his first two years in office, said the controversy, which coincides with a debate on Capitol Hill about deep cuts in government spending, drove home the need to make US tax policy more fair.

“The question is, can America afford Medicare when it has its most successful companies not contributing to the well-being of American working people?” he said, adding in defence of Mr Immelt that it would not have been responsible for the chief executive not to take advantage of the tax code on behalf of GE shareholders.