

The 57,000 Page Tax Return - Stronico
http://marginalrevolution.com/marginalrevolution/2011/11/the-57000-page-tax-return.html

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rayiner
A lot of a tax return is just huge reams of supporting documentation
(accountings of expenditures, etc). Also, keep in mind the scale of the
endeavor. $150bn in revenus accounted for in 57,000 pages. I.e. 1 page of
documentation for $2.63m in revenue. How much did it cost to generate and
analyze? $10m? $50m? At $50m that's an overhead of 0.03%, for an inevitable
part of running a modern society. Seems way less inefficient when you put it
in context.

~~~
tryitnow
That's a very good point. Once again the "headline" about a "huge tax return"
distracts information away from the real problem, which is that US nominal
corporate rates are too high and the effective rates are too low.

The real problem is not necessarily all the work that goes into filing the tax
return, but rather the influence peddling that leads to policies that
misallocate* scarce resources to politically favorable projects.

*this is just my bias, but I am willing to bet it's the consensus among economists that firms allocate private resources more effectively than politicians when those politicians are largely influenced by the firms themselves.

~~~
fleitz
The capital allocation is smart for an individual company given the political
environment, but the political environment is silly. The current system of
politics and influence is likely a Nash equilibrium. In the current
environment no one has anything to gain by unilaterally changing their
strategy, and thus hiring lobbying firms is a good allocation of capital.

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bfe
Ultimately, economic growth comes from growth in productivity, i.e. making
stuff people want. We seem to be riding an ever-increasing complexity of
arbitrary systems, including tax laws, financial regulations, healthcare
regulations, etc. that is drawing an ever greater share of the time and
talents of the well-educated workforce into the world's largest game of
Dungeons & Dragons against each other, and not making anything that anyone
wants.

~~~
saturdayplace
I've wondered a lot lately whether our bureaucracy might someday collapse
under its own weight. Given the scale of many of our problems, and seeming
incapacity of our bureaucracy to solve them, it seems like eventually people
might come to the conclusion that the only solution is to throw out the
bureaucracy and start over.

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zeteo
No bureaucracy collapses under its own weight. What happens, when rules become
too complex, is that they start being enforced arbitrarily, according to the
discretion of the enforcers. The system still derives its legitimacy from the
supposed impartiality of written rules, but in fact becomes an ad-hoc
collection of petty fiefdoms in a loose hierarchy.

~~~
jfoutz
Or, revision and simplification. Reagan's elimination of bracket creep springs
to mind.

an AMT for corporate income might be a useful limiter. We'd like you to grant
options, we'd like you to donate charitably we'd like you to do a bunch of
stuff, but at the end of the year, we still want X% of your income.

~~~
ppereira
I think that bracket creep has very little to do with simplification. If one
plots the page length of the US Tax Code over time, that figure continually
increases. Simple page count is probably more highly correlated with the
complexity and arbitrariness of corporate tax. Tax brackets often fit on 1
page, are rarely litigated in court, and pose little complication to
corporations.

~~~
jfoutz
Well, according to wikipedia, simplification doesn't get full credit. Repealed
laws are replaced with notes about the law so people can understand what was
going on in an historic context.

Furthermore, the 1040 got shorter from 1985 (<http://www.irs.gov/pub/irs-
prior/f1040--1985.pdf>) 68 steps and 1986 at 67 steps, and 1987 at 65 steps.

So, perhaps the litteral line count is constantly increasing - but
simplification happens. you could, clearly, argue that 3 steps simpler is a
drop in the ocean, and that's not without merit. however claiming
simplification is impossible is clearly false.

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jfruh
What would happen if corporate taxes were lowered to zero, but capital gains
were taxed as ordinary income? Corporations are not people, etc., and maybe
taxes should only be imposed when they actually enter a human being's
possession.

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mmcconnell1618
One problem. Let's say I own a corporation and the corporation decides to use
it's profits to purchase a G5 Jet, a mansion, a fleet of limos, an
entertaining budget, etc. I'm essentially going to live like a king tax free.
While I wouldn't technically "own" the items I would benefit from them. How
can you regulate benefit? Where do you draw the line as a costs of doing
business and a direct benefit to the CEO?

~~~
yummyfajitas
As of 1986 (in the US), such things are taxed as compensation.

Before 1986, most compensation to corporate executives was given out in such
forms. In many other countries, executive wages are lower and the difference
is made up with non-wage compensation such as what you describe.

Incidentally, this change in tax law created the biggest spike ever in
(measured) income inequality:
[http://www.scottwinship.com/1/post/2011/03/what-would-it-
mea...](http://www.scottwinship.com/1/post/2011/03/what-would-it-mean-for-
theories-of-us-income-inequality-growth-if-the-us-experience-has-been-similar-
to-that-everywhere-else.html)

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patio11
This is _very_ much in evidence if you know e.g. any Japanese CEOs. Our CEO
(old day job) was bragging at a meeting one day about the $X00,000 car he
drove, and then said "Remember, I work for a living, that's the company's
car." It will continue being the company's car for the duration of his tenure
with the company, and after he is CEO emeritus and on an advisor-to-the-board
position he will naturally be given a new company car, and ...

It also gets straight-line depreciated at, probably, 95 ~ 100% business use.

(This is considered standard business practice here, in the same manner that
an American businessman expensing a WSJ subscription would be totally-
inconceivable-to-challenge standard business practice. When I bring in my
income tax return in March I'm probably going to get chided again by the tax
office for "forgetting" so many of my deductions.)

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jonhendry
Given the vast size and complexity of GE's business, I don't really think
57,000 pages is unreasonable. Who knows how many hundreds of sub-units they
might have, foreign entities, etc.

At $150 billion of revenue, that's $2,631,578.95 of revenue per page. Which is
better than most tax filers have to deal with.

Especially when, as a result, they save billions of dollars in tax payments.

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bobbles
I thought this whole story was debunked a while ago along the lines of GE
bringing forward their losses from the previous tax year, which is why they
paid no tax

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TheFuture
That doesn't make for good class warfare rhetoric though. We're headed into an
election year!

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Pythondj
If you'd really like to dive deep into GE's filing try taking at look at it as
a tagged XML file using XBRL at [http://www.sec.gov/cgi-
bin/viewer?action=view&cik=40554&...](http://www.sec.gov/cgi-
bin/viewer?action=view&cik=40554&accession_number=0000040554-11-000165)

You can also download the data as an Excel Spreadsheet - they may obfuscate as
much as they want - but if you start leveraging the XBRL tags - you can
automate search for that incriminating needle in a haystack...

This is what the SEC auditors are doing these days1

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dfc
You realize that is a 10-Q and not a tax return? IRS and SEC are separate
institutions. There is a big difference between the types of financial
reporting for stocks versus federal income tax.

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jeffreymcmanus
We need an alternative minimum tax for corporations. If this is OK for
individuals it should be just fine for billion-dollar businesses.

~~~
radog
There is a corporate AMT.

~~~
jeffreymcmanus
Then why didn't GE pay it? Somebody's got their definition of 'minimum'
screwed up.

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mcantor
This is one of the most sublimely hilarious and soul-crushing things I've read
recently. It's like an Onion article.

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Cieplak
Anyone know where to find this 57,000 page PDF?

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dfc
Tax filings are not public information.

~~~
Cieplak
Thank you, I wasn't sure if they were

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jellicle
This blogger is, as usual, arguing that the corporate tax code is somehow too
complex.

Rather what is happening is that GE is intentionally gaming the system. Most
of those 57,000 pages are self-inflicted. If GE refrained from tax-dodging
activity and only undertook regular business activity, their tax return would
be much, much thinner.

[http://money.cnn.com/2010/04/16/news/companies/ge_7000_tax_r...](http://money.cnn.com/2010/04/16/news/companies/ge_7000_tax_returns/)

A few lines of patching to the tax code to require that income earned in the
U.S. be taxed in the U.S. would fix the majority of the problem. Literally a
couple of sentences.

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Anderkent
Or, you know, make the tax code simpler so that there is less room to game the
system?

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three14
Although there are clear problems with the tax code, people forget that some
of the complexity is there because _that's what most people actually want._

People want a tax deduction for charity.

People want to tax corporate profits, not revenues - so you need to figure out
how much is actually profit. Is R&D a real expense? Can we just sink all our
profits into R&D and say we have no profits? But you can't just tax all R&D as
if it was profit that the company is hiding or software companies would go out
of business. What about when you have some complicated schedule of when a
client pays you - do you record the revenue when you earn the money or when
you get it?

Many people want a tax deduction for a mortgage (whether or not this makes any
sense).

Like software, complexity gives room for hacks. You can't hack into a hammer,
but you can hack into a computer. If you want a complex tax code, you don't
simply declare "Simplify!" It's like "I'm going back to my typewriter to avoid
viruses." There are more realistic ways to deal with the problem, and like
computer security, it takes real time and effort.

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drstrangevibes
possibly one of the best hacks of 2011

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JfromSw
"Consider the resources that GE spends to lowers its tax bill... Indeed, a
corporate tax system with a tax rate of zero could well be preferable as it
would waste fewer resources and raise not much less revenue."

Or you could just pay your taxes, GE

~~~
yummyfajitas
GE does pay their taxes. The issue is that they structure their business in a
socially inefficient way in order to minimize their taxes. They do pay the
taxes they owe.

I'll speculate that what you may really oppose is structuring transactions in
order to avoid taxes. But then again, you may not.

Do you oppose employers providing health insurance, i.e. untaxed compensation?
Do you oppose individuals buying a home when the mortgage interest tax
deduction tips the scales in favor of home ownership? Or corporations
switching to green energy sources when tax subsidies make it economical [1]?

[1] Incidentally, this is one of the bigger tax breaks GE used.

~~~
JfromSw
I'm sure they pay the taxes they owe and they do it within the legal framework
they operate in, otherwise we would be reading a whole other article about
corporate fraud.

Instead the article is about a company that paid zero in taxes on their profit
thanks to "extraordinary use of tax breaks and clever accounting".

I'm not against any of the tax structures you mention, GE doesn't need the
best tax experts in the world for those things. So even though I haven't read
the 57,000 page tax return I am willing to guess that all of the tax breaks
used where not of the same considerate nature as the ones you mention.

It just seems like the primary motivation is to avoid paying taxes, not
switching to green energy or even pay health insurance. The article even
mentions "inefficient ways that GE structures its businesses just to avoid
paying taxes", which, if true, is a major indicator.

Of course I may be completely wrong, I don't know what the motivation is and
why they seem to work so hard not to pay taxes on their profit.

~~~
yummyfajitas
The biggest tax break they got is a loss carryforward. This is a one time
event due to losses incurred by GE Capital, and is almost certainly not
something they did on purpose.

[http://www.investopedia.com/terms/l/losscarryforward.asp#axz...](http://www.investopedia.com/terms/l/losscarryforward.asp#axzz1edUBe5si)

In contrast, GE's green energy and paying for employee health insurance are
done directly to avoid paying taxes.

GE's windmills are profitable primarily because of the tax benefits. And there
is no business reason whatsoever why a company should pay for employee health
insurance, or car insurance, or cable TV. Companies pay for health insurance
because it reduces the tax bill, and they generally don't pay for car
insurance (which doesn't reduce the tax bill).

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jasonkolb
The only way to prevent this is to move to a sales tax model. Anything else
can be gamed ad nauseum as GE & co have so helpfully proved. With today's tax
system, the amount of taxes you pay are inversely proportional to the amount
of complexity you're willing to deal with.

And since corporations are legally people, you're barking up the wrong tree
with conversations about not taxing businesses. Sales tax it, period. Cannot
be circumvented.

~~~
smokinn
Sales tax only puts the burden disproportionally on the poor.

If you're making millions of dollars a year you're probably only spending a
small fraction of it and if there's only sales tax you pay tax on a percentage
of what you spent. So let's say you made 30 million dollars and spent 8 and
say the sales tax rate is 15%. In this case you paid 1.2MM in tax for a
marginal tax rate of 4%.

On the other hand if your income is 15k you're probably spending it all or
very close. In which case your marginal tax rate is 15%.

Not all that fair I'd say.

Personally I like the progressive income tax method. I just think capital
gains should be taxed as income rather than at a flat 13% and no special rules
for corporations either. If they want to be people they can be taxed like
people. If they want to be different then we can just get rid of corporate
personhood. I doubt they'd like that much.

~~~
protomyth
You can actually fix a lot of the sales tax issues by excluding certain
categories (e.g. unprepared food, clothing).

I am more a flat rate tax person with a base exclusion per tax payer (i.e.
your kid working a summer job files for themselves) and only one tax line (the
government can divide it between SS, FICA, etc). As a curiosity, I was trying
to figure out what would actually be revenue neutral. I think somewhere in
$20K deducible then 17 - 20% flat rate after that. It is really not that easy
to get all the information needed to play with various scenarios.

~~~
rmc
_excluding certain categories (e.g. unprepared food…_

And then there are court cases about whether this is a biscuit or a cake.
<http://en.wikipedia.org/wiki/Jaffa_Cakes#Cake_or_biscuit.3F>

~~~
protomyth
No doubt it gets to be a little weird, but unprepared is a pretty well defined
thing if you don't do what the federal food stamp program in the US does and
type of food shouldn't really matter. If it requires cooking or is primarily
an ingrediant then no tax.

US weird stuff: If you buy a frozen burrito it is ok. Unless the store has a
microwave and you use it, then it is not ok. If you go home and microwave it
then it is ok.

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anamax
> unprepared is a pretty well defined thing

Okay - provide the definition and we'll see how well it works. Note that we're
not as good at this sort of thing as tax lawyers.

If you go with/retreat to "we'll get experts to define it" ....

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protomyth
I don't have to define it, it is in the law books in several states - even the
fed food stamp program has its own version which I mentioned is problematic.

~~~
anamax
Actually, you do, or at least provide a useable cite, because you claimed that
there's a good definition but only mentioned bad ones.

Let's see a good/not-problematic definition.

