Earnings get taxed, sooner or later

The news says GE paid no taxes last year. If that’s so, it would be because the law did not require them to pay. Blame (or credit – lower corporate taxes are good, right?) the politicians. Maybe GE hired brilliant lawyers and accountants, or maybe their cronies in Washington fixed the law for them. Or maybe GE made no real profit.

If they’ll manipulate the tax code, they will certainly manipulate investors. In any given year a company the size of GE has a lot of latitude in what to record as earnings. Senior managers can do very well for themselves by managing Wall Street’s expectation of earnings and growth. If over a number of years a corporation is not paying much tax, they probably are not really making much money, no matter what the annual reports say.

Investing isn’t rocket science. If the annual reports do not make sense to a reasonably intelligent layman, there’s a good chance they simply do not make sense. If after reading the company reports, the news, and a couple of magazines you can’t understand how the company makes money, or why having made a bazillion dollars they owe no tax, don’t buy the stock. You need maybe ten individual stocks for a reasonably diverse portfolio. In the S&P 500 alone there are, um, five hundred companies. If you can’t understand the business of four hundred of them, that still leaves plenty to choose from.

Of course these are simply some random thoughts of my own. Don’t invest based on what some guy says on his weblog.

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2 Replies to “Earnings get taxed, sooner or later”

  1. or credit – lower corporate taxes are good, right?

    Because I have to bite….

    Low corporate taxes are good because if folks look forward and notice it’s really cheap to produce, they’ll do more of it. (to mickey mouse it)
    One company getting a who-the-heck-knows tax break doesn’t give that sort of certainty, so it doesn’t help, especially since the company is being (rather illegally) controlled by the gov’t. Heck, the whole thing being rather illegal is bad.

    Other than that, yeah.

    1. Still, it’s that much less money going to Washington and that much more for GE to invest in innovative R&D, employee training, and new factories. And if that R&D is in financial arcana, the employee training is for H1B visa holders, and the factories are off shore, well, that’s the creative destruction that’s made our economy the powerhouse it is today.

      But with less snark, I agree crony capitalism is a bad thing, if not an entirely new thing. It’s not capitalism at all, but something closer to socialism.

      GE probably does not actually violate any laws, or at least it’s careful to stay in the gray areas. The tax code has become so complex that reasonable people can disagree about what the law actually demands.

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