GE Lobbyists Mold Tax Bill

In some ways, the recent lobbying campaign was anticipated in 2001 with the release of a scholarly study called "International Tax Policy for the 21st Century" by the National Foreign Trade Council. Lobbyists say the study's recommendations for change in the law, influenced by GE's input, helped lay the groundwork for the provisions that GE now seeks.

A top target: the provision enacted in 1986 that created nine separate categories -- or baskets -- of overseas business activities. Companies earn credits for taxes they pay to foreign governments and can use them to offset U.S. taxes on overseas profits. But credits earned from one activity could not be used to reduce taxes owed from another business venture, nor could taxes paid in high-tax countries be used to reduce taxable income earned in tax havens abroad.

"The whole point of the baskets is to prevent that abuse," said McIntyre, the Wayne State professor.

GE pressed to reduce those nine categories of business activities to two, in the name of simplification. One of the baskets that would be eliminated is for financial services. That way, foreign tax credits from GE's many manufacturing activities could be used to reduce taxes owed on the profits from its lucrative financial services division, GE Capital.

The fight over the foreign tax credit baskets has been difficult. Senate Finance Committee Chairman Charles E. Grassley (R-Iowa) and the committee's ranking Democrat, Baucus, balked at the proposal, saying it cost too much. But GE fought back aggressively.

Its lobbyists argued that streamlining the foreign tax baskets was real reform. To prove its point, GE's in-house tax experts and hired lobbyists presented policy papers and reams of information on the number of jobs their provisions would create. Still, GE's efforts fell short in the Senate. The company lost the baskets issue there but won its fight on its second priority issue -- to make overseas leasing income tax-deferrable, a provision that would cost the Treasury more than $2 billion through 2013.

GE was more successful in the House Ways and Means Committee. Chairman Bill Thomas (R-Calif.) backed the basket-streamlining provision, reasoning that the nine categories were created by a Democratic predecessor, Dan Rostenkowski (Ill.) solely to raise money for government. When the House bill passed last month, not only had the company won its foreign baskets provision, but it also secured a rich tax break on its aircraft leasing business. GE allies also slipped in a four-year suspension of customs duties on foreign-made steam generators and nuclear reactor vessel heads.

There was one reason for GE's victories, said one lobbyist whose firm worked with the company on the legislation: diligence. General Electric realized more than two years ago that the need to repeal the export subsidy would snowball into a major corporate tax bill. The company's tax lawyers compiled a wish list and framed the firm's desires as simplification. The GE team also was among the first companies to sign on to Thomas's initial efforts to solve the foreign-treaty issue and stuck with him as other businesses and lawmakers fought him at every turn.

The company's lobbying team touched every base. Joseph M. Mikrut, a former tax legislative counsel at the Treasury Department, teamed with his colleague at Capitol Tax Partners, Jonathan Talisman, a former assistant Treasury secretary for tax policy, to work the policy experts at Treasury. Nick Giordano of Washington Council Ernst & Young, a former Finance Committee aide, and Lindsay D. Hooper of Capitol Tax Partners became the "go-to" guys on the team in Congress. And Kenneth J. Kies of Federal Policy Group, a former Joint Tax Committee director and perhaps the highest-profile tax lobbyist in Washington, was brought on for the final pushes.

GE is likely to get a lot of what it wants, tax aides in Congress agree. The company certainly has been successful before in passing legislation that has kept its taxes low.

Between 1994 and 2001, the company's effective tax rate was above 30 percent in every year but one, according to Standard & Poor's. Last year, the firm's tax payments slid to 21.4 percent of profit even though the top corporate tax rate remained at 35 percent. If the new legislation is signed into law, GE's tax payments are likely to fall further, said Robert S. McIntyre of the liberal Citizens for Tax Justice.

"This is the definition of corporate welfare," McIntyre said. "To these guys, old tax breaks have become entitlements, even illegal ones."