03 DEC 18 11:53 ET By Chris Isidore, CNN Business
(CNN) — General Motors has earned tens of billions of dollars in profit over the past decade. But the automaker has paid essentially no federal income tax to Washington since it came out of bankruptcy.
And GM probably won’t have to pay much in federal taxes for at least the next five years.
GM isn’t evading Uncle Sam. Federal law allows companies to use past losses to shield future profits from taxes. The tax break, known by the wonky name “net operating loss carryforward,” is one the most common tax breaks in corporate America. Most businesses lose money at some point. The tax break is designed to help struggling companies get back on their feet.
GM is an extreme example. It suffered huge losses leading up to its 2009 bankruptcy. By 2010, it was again profitable, and it has essentially been very profitable ever since.
The company’s finances have been in the news again over the last week after it announced plans to close plants and cut thousands of jobs. President Donald Trump immediately attacked GM, arguing it should keep the plants open because of the taxpayer help it’s gotten in the past. He vowed to cut off any subsidies it is still receiving.
But for GM, its ability to effectively bank past losses to reduce present and future tax bills is more valuable than any of those government programs, including the net cost of the 2009 auto bailout and a federal tax credit for people who buy plug-in cars.
According to corporate filings, GM paid $18 million in federal taxes last year, its largest tax bill since the bankruptcy. Despite the federal tax break, the company paid millions in other kinds of taxes: $83 million in state and local, and $552 million in foreign, taxes last year, for example.
GM paid federal income tax in just three other years since 2010, totaling another $18 million.In most years it posted even larger credits, not an expense, for federal income taxes.
Along the way, GM posted total net income of $50 billion from 2010 through 2016, setting company profit records in several periods.
In fact, GM’s only reported loss since 2009 was last year. And that was because it had to write down the future value of the tax break it gets from past losses. The Republican tax cut plan, which reduced GM’s future tax obligations, means GM can’t count on saving as much money going forward.
Building up a storehouse of losses
GM’s profitability in recent years is very different from its financial performance leading up to its bankruptcy.The company posted total net losses of $82 billion between 2005 and 2008, and its operating loss in 2009 came to more than $23 billion. That gave it an enormous buffer against its future tax bills.
In February, Charles Stevens, who was then GM’s chief financial officer, assured investors that he expected the company to continue in “a very low cash taxpaying position … for the foreseeable future,” into 2022 or 2023. GM declined to comment for this story, other than to confirm that Stevens’ outlook is still accurate.
At the end of last year, GM still had $8.6 billion in future domestic tax breaks on the books.
Allowing companies to reduce their tax bills after losing money is good policy, said Tax Policy Center senior fellow Steve Rosenthal. Among other things, it helps them to borrow money at better interest rates and helps them raise money from the stock markets, since investors know the value of the tax break going forward. GM raised a then-record $20 billion from investors in 2010.
“Businesses report their net income annually, which is somewhat arbitrary,” Rosenthal said. “In order to tax net income over a business’ life cycle, we need to allow losses to carry forward.”
But the savings are huge. At the end of 2011, GM estimated it would end up saving $11.2 billion from the tax break from past losses.
By comparison, the federal government gave GM a $49.5 billion bailout to fund its turnaround. The Treasury Department got most of that back when it sold stock in GM that it held after the bankruptcy. Still, taxpayers took a $10.6 billion loss on the bailout.
In terms of other government assistance, GM is among the companies that benefit from a $7,500 tax credit that buyers get for purchasing plug-in cars. That tax break helps GM sell cars for a higher price. GM has sold nearly 200,000 of them, meaning the buyers’ tax bills have been reduced by a total of $1.5 billion.
The company also does get some research grants from government departments, such as the department of energy. But those grants are no where near as valuable, totaling tens of millions of dollars, not billions.
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