Don, as r3020 pointed out these companies use numerous tax loop holes to lower their tax bill. As mentioned Ryan has suggested lowering the tax rates and eliminating many of these loop holes.
Here is a good article from Forbes on what some of the top US companies paid in taxes for 2010. Guess which of the top 20 companies paid the highest rate? Those darn evil oil companies at above 40% followed by another company despised by many, Walmart at 32.4%.
The two companies that paid the least were ATT and GE. ATT was listed at a negative 6.4% because they had won a tax settlement with the IRS which reduced their taxes by $8.3 billion.
I had known that a big reason GE paid so little was because they have plants overseas and sell many of their products overseas. What I had not known was that GE's finance arm, GE Capitol lost a ton of money which also helped them to greatly reduce their tax burden. Pretty good gig deal for GE and others as overseas profits don't count towards US taxes but overseas loss can count to help them reduce taxes.
A trick more and more US companies are doing to get around our country's high corporate tax rate is by holding various intellectual property patents within foreign holding company subsidiaries so that the cash leaves the U.S. as a tax-deductible business expense.
What The Top U.S. Companies Pay In Taxes
To see if GE was an aberration, we took a look at the 2010 annual reports of the 20 most profitable U.S. companies. Some of the results may surprise you. The average income tax rate within the group was 25.4%. America's three biggest oil companies, ExxonMobil ( XOM - news - people ), Chevron ( CVX - news - people ) and ConocoPhillips ( COP - news - people ), all endure income tax burdens of more than 40%--higher than the statutory U.S. rate of 35%. Exxon, with a 45% rate, tallied $21.6 billion in worldwide income taxes for 2010. Wal-Mart Stores ( WMT - news - people ) paid $7.1 billion (at a rate of 32.4%) in income taxes.
A lot of other mega-corporations suffered losses during the financial meltdown as well, but their tax rates aren't as low as GE's. So what's GE doing that they aren't? Yes, GE's lobbyists have helped get laws passed like those that grant federal tax credits for green energy investments like wind turbines. GE both builds such turbines and invests in wind farms and gets millions in such credits.
But the real tax benefits are gleaned overseas. The U.S. has higher corporate tax rates than nearly all the world's biggest economies, so it's only natural that GE would seek to generate as much of its profits overseas as possible. As long as those profits aren't repatriated to the U.S., GE doesn't owe U.S. tax rates on them.
GE's surely not the only company taking advantage of overseas tax shelters. Google ( GOOG- news - people ) reportedly uses colorful-sounding strategies like "Double Irish" and "Dutch Sandwich" to send revenues through low-tax countries like Ireland and Holland, giving it a 20% tax rate for 2010. Hewlett-Packard ( HPQ - news - people ) says that it saves $1 billion a year in taxes by operating in some countries where it's "wholly exempt from taxes," resulting in a 21% rate. Apple's ( AAPL - news - people ) overseas cash hoard leapt from $17.4 billion in 2009 to $30.8 billion in 2010, in part because its intellectual property is owned by foreign subsidiaries.
Overseas profits stay overseas, beyond the arm of Uncle Sam. But when losses happen, like in the credit crunch, they can be netted against U.S. profits. Just another balancing act in the global marketplace.
If you want to blame someone for shipping jobs and capital overseas, blame Congress. There would be no reason for GE or any company to engage in accounting contortions if Congress just reduced corporate taxes to be competitive with the rest of the world--say 25%
