Why Did GE Leave For Another High-Tax State? Do Corporate Giveaways Trump Tax Rates in a HQ Move?
General Electric (GE) has complained for years about Connecticut's (its current corporate home) taxation and regulatory policies. Recently, it said it was moving for greener pastures, and was leaving for... Massachusetts?
Seriously? This is like moving from North Korea to China to get more freedom of speech. Boston's top state income tax bracket is perhaps a point lower than CT's but Florida or Texas have rates of zero, and a much lower cost of living and real estate.
Granted that Boston has its attractions for a company trying to change its public perception to being a technology company. But I can't shake the suspicion this has something to do with a relocation giveaway to GE from the city and state. GE has become one of the biggest supporters and beneficiaries of crony capitalism in the country. I have to believe they cut some sweetheart deal that will eventually funnel a bunch of Massachusetts taxpayer money into GE coffers. After all, if cities will throw away a half billion dollars in taxpayer money to attract an NFL team that does business for just 24 hours a year in the city (8 games x 3 hours per game), how much will politicians pay of their citizens' money to be able to list "attracting GE" as a lead bullet in their re-election talking points?
TruthisaPeskyThing:
Coyote, I will agree with your sentiments. Tax rates are one of many factors that influence a headquarter decision. It is important to remember that they are not the only factor. So Texas is out of the running because it is far from GE's sourcing of human resources.
One statement from your post that merits repetition: "GE has become one of the biggest supporters and beneficiaries of crony capitalism in the country." GE is Exhibit A on the charge that Democrats are equal to Republicans -- and more probably more so -- in giving favors to corporations that are politically connected.
January 15, 2016, 11:21 amMr. Generic:
Actually, not too bad. About $120 million in grants, a $25 million property tax break, and a $5 million dollar innovation center built by the city and the state. They're aiming at redeveloping the seaport district, which has some intermodal shipping lots. But the freight trains into and out of Boston have kind of slowed down.
January 15, 2016, 11:37 amBobSykes:
Nowadays, Massachusetts has the second lowest state tax rates in New England. Only New Hampshire's taxes are lower. Boston isn't lost in the Connecticut boonies, either.
January 15, 2016, 12:16 pmBram:
GE is run by East Coast Ivy League type snobs. Of course they wouldn't go someplace as uncivilized as Texas or Florida. The fact that Connecticut is that much worse than even Taxachussets is shocking. One-party Democratic rule can destroy a state.
January 15, 2016, 1:31 pmDavidRHenderson:
Actually, my impression is that China has substantially more freedom of speech than North Korea.
January 15, 2016, 1:58 pmDirtyJobsGuy:
I'm not sure but i think the new Ct rules on unitary taxation had a big role. The CT rules now make this mandatory and there is no water's edge provision. In addition there were special rules for corporations in yet to be listed "tax havens". There were other items such as repeal of prior policies on tax loss carryovers etc that were key to keeping corporate HQ's in Ct. For the HQ of a huge multinational the costs of compliance for state income taxes were non-trivial. Massachusetts did put up a lot of cash for "relocation expenses" and the downtown location is close to Logan airport (a real plus given that otherwise it was an hour + drive to LGA, BDK or JFK. Immelt is a terrible CEO to hear customers, former GE finance guys and others talk, but Connecticut currently is run by true business loathing progressives. Remember that in "Atlas Shrugged" Ct was the state that passes the no relocation rule to prevent companies from fleeing. Too close to the truth.
January 15, 2016, 3:49 pmIncunabulum:
Yes it does. But if you're moving to find increased freedom of speech there are other jurisdictions that offer *even more* freedom of speech than China does.
January 15, 2016, 8:58 pmhcunn:
There is a significant chance that MA will ratify a Constitutional Amendment allowing a special 4% higher bracket on incomes over $1 million, but that top rate ( maybe 9.4%) still would look OK compared to NY and CT, and would leave their middle management untouched. Several earlier attempts to give the legislature unlimited discretion to impose higher graduated taxes on everybody were voted down.
January 15, 2016, 10:08 pmirandom419:
I'll actually agree. We had a disc manufacturer, that owns a movie studio, open a plant here briefly and if memory serves, it closed after the tax exemptions expired. It's so funny to hear a local firm bitch about this or that, then see city council bend over backwards for a biggy.
January 16, 2016, 4:21 amQ46:
Take a look at the EU: Ireland, Belgium, Netherlands, Luxembourg all investigated by the European Commission because of sweetheart tax deals with companies.
in the EU companies are taxed in the jurisdiction of the company seat on all taxable income no matter where in the EU, or outside, profits on sales were made - even if the company has some physical presence in these other Countries. In other words the corporation just needs an office and registration in a particular Member State, whilst its actual activities are carried on in various other Countries.
This is specifically to encourage corporation tax competition among Member States of the EU... but there are rules, and it seems some Member States have been trying it on so that the effective tax rate paid is considerably below advertised rate.
Ireland has the lowest corporation tax rate 12.5% - by that reckoning every company should be seated in Ireland so tax is not the key factor for location, but Ireland's rate does explain why other Countries offer 'douceurs' to locate there.
I am sure competition between US States is just the same as in the EU.
January 16, 2016, 5:19 amnaturaljag0ff:
"Do corp. giveaways trump tax rates in a HQ move?"
Yes.
All of these execs & accountants are babyboomers... giveaways = golden parachutes. Tax rates are for the next gen. to worry about...
Never underestimate the very personal, underlying ethics behind such decisions. 'Boomer selfishness' is practically a synonym for 'crony capitalism'.
January 16, 2016, 7:28 pmGeorge R:
While it doesn't apply in this case, one of the big reasons NYC and Fairfield County fight hard for employees is how personal income taxes are collected. If you live in CT and take the train to NYC every day, you don't pay any income tax to the state of CT (except on interest and dividends). NY state takes the taxes, and since their rates are higher, people don't pay taxes to CT. I live in CT and work 50 yards over the border in Westchester, and pay less than $50 in CT income taxes. If the reverse applies and someone commutes from NY to CT, then they pay mostly CT taxes (since NY rates are a little higher for the most part, they pay the difference only to NY, so they might pay 5% to CT and 1.5% to NY if they are in a 6.5% tax bracket).
This causes the state government to give all kinds of tax breaks to companies to relocate 5 miles away, because if the company moves over the border, then the personal income tax of all the employees (regardless of where they live) goes to the other state. So getting a building full of high salaried people like UBS or RBS to move to Stamford means a lot more in state income tax collected.
This of course creates big distortions locally, and it would be better if, like most other places, people paid taxes where they lived, not where they worked, but NY would never agree to that.
This is why property taxes in NJ and CT are so high: many of the highest wage earners leave the state every day to go to NY, and thus pay no income tax to their home state.
January 17, 2016, 7:12 amMatthew Slyfield:
"Seriously? This is like moving from North Korea to China to get more
freedom of speech. Boston's top state income tax bracket is perhaps a
point lower than CT's"
That one point can mean big money for a large company like GE with revenue in the $billions,
Why not Florida or Texas? Puts the corporate HQ too far from DC. Most people think of appliances when they think of GE, but most of the company's revenue comes from heavy duty industrial scale electrical equipment and related control systems; transformers and other grid scale equipment for electric utilities, engines for diesel / electric locomotives. The majority of thier top customers are in heavily regulated industries.
January 17, 2016, 8:50 ammarque2:
I don't even think GE makes their own appliances any more. They just rent out the name. Like my GE water heater, which is made by Rheem.
January 17, 2016, 8:57 amMatthew Slyfield:
That wouldn't surprise me at all, but people still see the GE name / logo on those appliances, and that is what consumers associate GE with despite the fact that it is < 10% of their revenue.
January 17, 2016, 10:48 am