Friday, January 29, 2016

General Electric Leaves Connecticut


In January 2012 I put up a post about protestors in Connecticut who complained that General Electric (GE) did not pay enough taxes. At that time I did not predict that GE would leave Connecticut but in subsequent posts I did warn that if politicians listened to these protests, they might cause the giant company to leave its headquarters in the town of Fairfield, and kill the goose laying the golden eggs. 

Sure enough, after last year's Democrat budget threatened companies like GE with more tax increases and regulations, the giant company decided after Christmas to pull up stakes in Connecticut and move to downtown Boston in nearby Massachusetts. The governor of Massachusetts and Mayor of Boston welcomed GE with open arms and huge financial incentives. Ironically, it was Senator Elizabeth Warren of Massachusetts who initially spearheaded the attack on GE four years ago by claiming erroneously that the company paid no Federal taxes. Perhaps  the Governor of Massachusetts and the Mayor of Boston should now explain the economic facts of life to Senator Warren.

Once GE moves, Connecticut politicians who sought to increase GE's corporate taxes will find that GE and its employees will no longer be paying income, real estate, or sales taxes to the State of Connecticut. Those politicians who sought to require that GE increase the minimum wage by 50% for its few minimum wage employees will find that those workers will no longer have jobs. My special-needs grandson is one of those workers who in addition to his minimum wage found a safe and secure workplace with free breakfast and lunch at the GE headquarters.

Incredibly, the Governor of Connecticut or his cronies in the Legislature refuse to take any of the blame for this economic disaster. In England, there would have been a parliamentary vote of no-confidence and the Prime Minister would have resigned. Not so long ago in Japan a disgraced politician would have committed "hari kari". 

All Governor Malloy can do in Connecticut is dismiss the political hack he appointed a year ago to run the hopelessly mis-managed Department of Motor Vehicles. Is it any wonder that executives at GE balked at paying taxes to support the legion of political cronies that the Governor has appointed over the past few years, or the incredibly generous pensions guaranteed to powerful public service union members.

Below find the original General Electric post that appeared on January 7, 2012. 

Last year in Fairfield, Connecticut protestors  denounced corporate giant GE for its failure to pay corporate federal tax .  GE’s corporate headquarters are in Fairfield, and the protests drew much attention from newspaper cartoons and stories. I can see why it was hard for GE to defend itself against these charges that put it in such a bad light. It has already been stigmatized as a big bad heartless selfish business giant.

I am not an employee or representative of GE, and the company does not need me to defend it, but I would like to put the issue in a different light. In my opinion, this GE flap was a classic case of trying to kill the goose that laid the golden egg.
GE is perhaps the largest landowner in the town of Fairfield and as such pays a huge amount of real estate taxes to the town. It is also one of the largest employers in the state of Connecticut. Its employees all pay their share of real estate tax on their own homes. Even if they are renters, part of their rent goes to pay their landlord’s real estate taxes.

In addition to real estate taxes, all GE employees from CEO Geoffrey Immelt on down pay their share of Federal and State Income tax. For example, most GE employees will pay between 30 and 40 percent of their income in federal and state income tax.

The company and its employees must also pay about 13 percent of salary into Social Security. That tax is sent to Washington where instead of going into the proverbial “lock box” it must immediately be lent to the debt-ridden government in order to pay its current expenses.
It is not hard to calculate that more than 50% of the income of each GE employee goes to pay federal, state, and local taxes. On top of that, consider that all these employees pay sales tax on practically every item they purchase. Although hidden from view, our state gasoline tax must add about a dollar to the purchase of every gallon of gas.

Despite all these taxes, demonstrators still protest about the failure of GE to pay corporate taxes. Don’t they know that a corporate income tax is really a tax on consumers? Corporations merely act as tax collectors for the government. The buyers or consumers of their goods and services are the ones who actually pay the tax. For example, whenever the State of Connecticut raises the tax on cigarettes, the price of a pack goes up accordingly. The tax is always passed on to the consumer. If GE hadn’t found a way to avoid the corporate tax, the price of every light bulb, refrigerator, and auto loan would have been that much higher.

I must admit that I own 500 shares of GE stock in my retirement plan. The value of the shares has rebounded since the market hit bottom in 2008, but the current price of about $16 a share is far below its $50 value of 10 years ago. It pays a small dividend of about 2% that is also taxed by both the Federal and State governments.*

I guess that it was mainly the enormous losses that GE’s credit arm suffered in the recent financial meltdown that offset the company’s current gains and allowed it to avoid the corporate tax. I would also suspect that the company wisely took advantage of government tax credits designed to stimulate the search for alternative energy sources. I believe that GE is a very big player in the solar energy field. As a stockholder and a citizen I would rather see GE invest in energy for the future, and bonus employees who contribute to the effort, than send the money to Washington.

*Note: Since the original post, I have sold my GE stock.


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