No company in the nation had more to lose than General Electric Co. when the World Trade Organization decreed in 2002 that U.S. tax laws violated international treaties. The multinational conglomerate was saving hundreds of millions of dollars a year in taxes from the export subsidies that the United States had to discard.
But in a two-year campaign, fueled as much by brains as political brawn, GE has shaped the legislation that would replace the old export-promotion law in ways that would allow it to save as much, if not more, in taxes, according to both GE lobbyists and congressional aides. In pursuing its financial interest, the company may also have turned the U.S. corporate tax code away from domestic manufacturing and toward expansion of operations abroad.
"The bill is truly amazing," said Michael J. McIntyre, a tax law professor at Wayne State University and an expert on international corporate tax issues. "We had an incentive for exports that was illegal and had to be repealed. Now Congress takes the money saved by the repeal and uses it to reduce taxes on the income earned by U.S. companies in foreign countries, thereby making foreign investment more attractive than U.S. investment."
Advocates and detractors alike say such concerns -- broadly shared -- make GE's lobbying feat more remarkable. House and Senate negotiators are expected to begin final talks on the corporate tax bill this week or next. GE's final push is about to begin.
GE was far from alone in trying to fashion what has become the most important corporate tax bill in nearly 20 years. Lobbyists for the nation's biggest companies have dusted off their favorite tax benefits and tried to sell them as part of the legislation. As a result, the measure, which began as a simple repeal of the $5-billion-a-year export subsidy, has swollen to include more than $140 billion in tax breaks over the next 10 years.
But GE's clout stands out. Of one provision eventually worth $2 billion a year, GE will reap an "overwhelming percentage," said John Buckley, chief tax counsel for the Democratic staff of the House Ways and Means Committee.
"They're getting a lot more out of this than they ever had" from the export subsidy, Buckley said.
A GE spokesman declined to comment.
The lobbying battle began in earnest soon after the WTO declared the U.S. international tax regimen illegal. The international trade enforcement organization said the laws unfairly subsidized American exports and had to be repealed to conform with trade accords. Many exporting companies saw the ruling as a disaster, but GE, one of the most experienced and successful firms in the rough-and-tumble world of tax legislation, viewed it as a chance to revise the tax code to its liking, its Washington representatives said.
Since the Tax Reform Act of 1986, GE tax lobbyists have hunted for an opening to insert into law two new statutes. The first would simplify the way companies could use the taxes they paid overseas to reduce their U.S. tax bill. The second would allow companies to defer indefinitely paying taxes on their overseas leasing businesses, especially the profits from the leasing of commercial aircraft, a business in which GE is a world leader.
If written in the way the company desires, the provisions would add many millions of dollars to its bottom line. So GE, the nation's fifth-largest company with $134 billion in annual revenue and the largest by stock market value, put its substantial resources into action. It is one of the biggest players in the Washington campaign-contribution game and commands the most high-powered tax-lobbying team fielded by any corporate interest.
The result: GE is poised to win one and possibly both of its druthers and will benefit from many other provisions in the massive legislation. Still, more lobbying lies ahead for the company. The House and Senate still have to reconcile the versions of the bills they passed, and GE will have to fight to get all of its most-sought-after provisions.
Few firms are as well positioned. No company spends more on lobbying than GE, according to PoliticalMoneyLine.com -- $7.54 million last year alone. Its political action committee, through which it donates to congressional candidates, ranks in total donations among the top 10 of all corporations this year.
But GE's real strength is in information, not cash. Its effort on the tax bill illustrates what can happen when Congress throws its doors open to the business community on a highly complicated topic and an experienced team is waiting with all the answers.
The company chose carefully who devised and presented its tax policies to Congress and the White House. Unlike other corporations, GE's contract lobbyists do more than open doors so that its executives can make the case. The lobbyists are renowned in their fields and the company encourages them to function as much as advisers as pleaders to lawmakers who crave their expertise.
"They're very smart people," said Mark A. Prater, the Republican tax counsel for the Senate Finance Committee. "Some of the smartest tax lawyers in the country advise them."
GE's tax-lobbying team includes people who have held virtually every important tax-policy position in Washington: a former assistant treasury secretary for tax policy; former chief tax counsels to both the Senate Finance Committee and the House Ways and Means Committee; and a former staff director to the Joint Committee on Taxation, Congress's tax legislative clearinghouse.
Three of Washington's best-regarded tax-lobbying boutiques are on retainer to GE: Capitol Tax Partners LLP, Clark Consulting's Federal Policy Group, and Washington Council Ernst & Young.
Those are just GE's hired lobbyists. Its corporate tax staff is headed by John M. Samuels, who was a tax legislative counsel in President Jimmy Carter's Treasury Department. Several other staffers at GE's Connecticut headquarters also are veterans of the international tax division at the Treasury Department.
GE's Washington office also includes former senior aides to two former chairmen of the Senate Finance Committee -- Max Baucus (D-Mont.) and Lloyd Bentsen (D-Tex.). The new office head, Nancy P. Dorn, recently left the White House, where she was a deputy budget office director and previously was a foreign policy aide to House Speaker J. Dennis Hastert (R-Ill.).
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."