Big Power Corrupts Bigly

In 2010, General Electric (NYSE:GE) had revenues of $149 billion.  That's larger than the gross domestic product of all but about one-quarter of the countries on earth.  General Electric may also be the most diverse company in the world, involved in everything from jet engines to coffee makers, power plants to sealants, finance to lighting, and General Electric's "economy" is more diverse than the economy of many nations and most governments. They have over 300,000 employees working all over the world.  General Electric is currently number 6 on the list of Fortune 500 companies.  They are almost a nation unto themselves.

In 2010, GE had profits of $14,200,000,000, of which $5,100,000,000 was earned in the United States, yet GE paid no U.S. taxes:

...low taxes are nothing new for G.E. The company has been cutting the percentage of its American profits paid to the Internal Revenue Service for years, resulting in a far lower rate than at most multinational companies. 

Its extraordinary success is based on an aggressive strategy that mixes fierce lobbying for tax breaks and innovative accounting that enables it to concentrate its profits offshore. G.E.’s giant tax department, led by a bow-tied former Treasury official named John Samuels, is often referred to as the world’s best tax law firm. Indeed, the company’s slogan “Imagination at Work” fits this department well. The team includes former officials not just from the Treasury, but also from the I.R.S. and virtually all the tax-writing committees in Congress.

Other huge companies are also using hordes of lawyers and lobbyists to collude with the government to avoid taxes and let others bear the burden of funding the government:

While General Electric is one of the most skilled at reducing its tax burden, many other companies have become better at this as well. Although the top corporate tax rate in the United States is 35 percent, one of the highest in the world, companies have been increasingly using a maze of shelters, tax credits and subsidies to pay far less. [...] 

Such strategies ... have pushed down the corporate share of the nation’s tax receipts — from 30 percent of all federal revenue in the mid-1950s to 6.6 percent in 2009.

And Big Government, including Obama, is definitely a willing player in the collusion:

Obama ... has designated G.E.’s chief executive, Jeffrey R. Immelt, as his liaison to the business community and as the chairman of the President’s Council on Jobs and Competitiveness, and it is expected to discuss corporate taxes. 

“He understands what it takes for America to compete in the global economy,” Mr. Obama said of Mr. Immelt, on his appointment in January, after touring a G.E. factory in upstate New York that makes turbines and generators for sale around the world. 

A review of company filings and Congressional records shows that one of the most striking advantages of General Electric is its ability to lobby for, win and take advantage of tax breaks.

I don't mean to pick on GE.  While they've been the most successful at the tax avoidance game, Big Money (Wall Street), Big Pharma, Big Oil, Big Military, etc. all have been quite successful at collaborating with Big Government to fleece the rest of the country via favorable tax and regulatory treatment for these important election campaign donors.  The Bigs fund the elections of the politicians and bureaucrats and the government largess is the return payment for that funding.

The solution is quite simple.  First, eliminate the corporate income tax completely, especially since it only represents 6.6 percent of all federal revenue anyway.  This will immediately eliminate all the current collusion and corruption.  This should actually be moderately easy to get through Congress, if not right now, then eventually.

Second, institute a revenue tax (NOT income tax), on all revenues over some amount, say $10 billion, with no loopholes, and increasing rates as revenues increase beyond $10 billion.  If economies of scale still favor the company even with the revenue tax, fine.  If not, the shareholders will force a breakup of the company because the new pieces will then be more profitable in aggregate because each piece will be smaller and able to avoid the tax on revenue.  This would help reduce the number of Bigs and their inherently corrupt relationship with Big Government.

Limiting the number of large and powerful companies would be a good thing since, to paraphrase Lord Acton, power corrupts and big power corrupts bigly.