General Motors has not paid federal taxes in more than a decade. In fact, it will likely not pay U.S. federal income tax for the next several years, its former chief financial officer has said.
Likewise, Ford Motor Co. has paid U.S. income tax only three of the last 10 years, based on filings with the Securities and Exchange Commission. Each company has gotten about $450 million in tax refunds since 2009, an economist estimated, based on the filings.
According to GM's latest 10-K filing, the company is owed $104 million as a tax refund for 2018.
The two companies have turned profits between them totaling more than $100 billion in the past 10 years.
This reality of the U.S. tax code led to a recent Axios post and a snarky tweet from former U.S. Secretary of Labor Robert Reich, comparing hefty refunds due GM and other corporations to the average American's shrinking 2019 refunds from Uncle Sam, saying it's "more socialism for the rich."
While millions of Americans have seen their refunds shrink, some of the most profitable corporations in the country are filing for massive refunds:— Robert Reich (@RBReich) February 22, 2019
--U.S. Steel: $303 million
--GM: $104 million
--Amazon: $129 million
--Goodyear: $15 million
It's more socialism for the rich.
We asked economists to sort this out.
For one thing, comparing the corporate income tax to the personal income tax is "not exactly apples to apples,” said Charles Ballard, an economics professor at Michigan State University.
“But Reich’s point is the benefits of corporate tax cuts accrue mostly to high-income individuals," Ballard said. "That’s a trend that goes back to the late 1970s and early 1980s.”
Early Progressive Era
Reich's tweet is "grossly misleading," agreed Jon Gabrielsen, an economist who consults with automakers and auto suppliers.
"Personal income taxes for most people only apply to events that took place in that single year, while corporate income taxes paid in that same year can involve the impacts of events that occurred a decade ago,” said Gabrielsen.
Gabrielsen noted that corporations do pay hundreds of millions in local, state and other taxes. It is only on the federal level most are getting a break.
The corporate income tax was established in 1909 as a hallmark of the Progressive Era to control monopolies. It was later folded into the New Deal in the 1930s, said Ballard.
“It was a reaction to the Gilded Age, the days of the robber barons," said Ballard. "It was an attempt to control the excesses of inequality and great wealth."
But U.S. tax policy has reversed in the last 40 years, now benefiting the wealthy, said Ballard. Last year, the U.S. corporate income tax rate for income generated in the United States dropped to 21 percent from 35 percent, he said. In the 1940s through the '60s, the rate was 53 percent, Ballard said.
The U.S. corporate income tax on income generated outside the United States is now zero, compared with 35 percent prior to 2018, said Ballard.
GM's income tax
There are a couple of reasons why GM has not owed federal income tax and has received rich refunds over the past decade.
First, U.S. tax law allows companies to deduct past losses to offset current profits. It's called "net operating loss carryforwards," said Gabrielsen.
The idea behind these "loss carryforwards" is to help companies recover from down years so they can continue to create employment. A great many companies use such credits, including the Free Press's parent, Gannett, in recent years.
In GM's case, it lost $86 billion from 2005-09 before it entered federal bankruptcy protection and received a government bailout, on which taxpayers ultimately lost about $10 billion. Its pretax profits since 2009 have been about $69 billion, so GM has not earned as much as it lost.
Second, the tax code also grants credits to corporations that invest in their infrastructure, research and development, and pensions.
In GM's case, it has R&D investment of about $7.5 billion a year. In fact, from 2010 through last year, GM has spent $66 billion in research and development.
The U.S. tax code offers such incentives to help companies stay viable to provide jobs and stimulate the economy, Ballard and Gabrielsen said.
The result for 2018 for GM is a tax refund of $104 million on $11.8 billion in profits. GM likely will receive the payment in 2020.
GM would not disclose when its net operating loss carryforwards might run out. But GM's former CFO, Chuck Stevens, said last year that because of the tax credits GM had, the company would not be paying any U.S. income tax "for the next several years.”
GM declined to comment on Reich's tweet or other news stories, but in an email to the Free Press said: "We continue to invest heavily in R&D and manufacturing to strengthen our business and the communities where we live and work. GM pays taxes in accordance with all local, state and federal laws."
Gabrielsen said most corporations do not have an expiration date for using the net operating loss carryforwards because it is unknown how much the business will earn in coming years. Therefore, the business cannot know how many carryforwards it will need each year to offset the taxes.
Also, since the auto industry is cyclical, by the time a carmaker is running low on loss carryforwards, it may plunge back into losses and "get a massive amount added to their net operating loss carryforwards for the next up-cycle," Gabrielsen said.
At Ford the tax laws benefited it in terms of federal income tax over the past 10 years.
From 2009-18, Ford got a total of $461 million more from the government in tax refunds than it paid in taxes, said Gabrielsen. He derived that total from Ford's 10-K filings, also calculating that the company showed total U.S. pretax income of $47 billion over the period.
Ford declined to confirm or dispute that figure.
SEC filings indicate for 2016 and 2017 Ford received refunds of $122 million and $125 million, respectively. Since 2009, Ford paid federal income tax of $4 million in 2012, $75 million in 2015 and owes $75 million for 2018.
The big divide
Fiat Chrysler automobiles is a bit of mystery because it is incorporated in the Netherlands, so the closest filing resembling a 10-K is called a 20-F, a similar but not identical form. FCA also did not report its financials publicly until 2012. Fiat Chrysler was formed out of government rescue and bankruptcy in 2009.
FCA's total net income tax expense was 4.6 billion euros for 2016, 2017 and 2018 covering a variety of regions. Its total income taxes paid for those years was 1.9 billion euros as disclosed in its 2018 Form 20-F filing. The difference represents deferred tax payments resulting from tax deductions such as depreciation. FCA didn’t break out its U.S. tax expense.
MSU's Ballard said the argument that corporations get the credits and loss carryforwards to keep them viable employers is reasonable.
“It wouldn’t have made any sense to try to squeeze any extra income out of GM in 2009 because there wasn’t any income to have," he said.
But he said it also is reasonable to ask if the benefits should be more restricted.
“My takeaway is mixed. The fraction of revenues to the federal government that is paid by corporate taxes has gone way, way down, and it’s true we don’t want to have punitive taxes on corporation because they do important work, they employ people and make products,” said Ballard. “But the long-term trend has been on benefiting high-income individuals.”
Reich is a liberal, so Ballard said, “I’m not at all surprised he would say that. He would argue for higher taxation of corporations and for high-income individuals, and that is one of the big divides in our politics.”
This article originally appeared on Detroit Free Press: GM hasn't paid US income tax for years; Ford rarely does. Both get fat refunds. Here's why