General Electric is a company that has long been known for innovation going back to the days of founder Thomas Alva Edison, but now some of its greatest innovations may be in the way it avoids paying corporate income taxes.

The corporate behemoth’s creative use of tax deferral strategies, shifting much of its reported income to foreign subsidiaries, has shed new light on how multinational corporations oftentimes pay little to no taxes. GE not only paid no federal income taxes on its $14.2 billion in profits last year, but even claimed $3.2 billion in tax benefits. A New York Times article last week pointed out that GE employs a 975-employee tax department run by a former Treasury Department official, John Samuels. The department is sometimes known as the world’s best tax law firm, and also includes former officials from the IRS and congressional tax-writing committees.

GE responded to the article by pointing out that it was able to claim the tax breaks largely because of the money lost by its GE Capital unit during the financial crisis. The company also pointed out that it pays payroll, state and local income taxes. However, GE also relies on complex tax deferral strategies that allow it to shift the bulk of its profits to low-tax countries, along with the active financing exception tax break that GE Capital and other financial firms lobbied Washington to enact into law and keep in the Tax Code.

As the Times reported, when former House Ways and Means Committee Chairman Charles Rangel, D-N.Y., was considering dropping the active financing exception back in 2008, GE lobbied to preserve the tax break and ultimately succeeded. Around the same time, the company also made a $30 million donation to schools in Rangel’s congressional district. His office has denied that the donation was connected to his stance on the tax break.

GE also enjoys many other tax benefits, including the ability to rapidly depreciate its capital investments, along with renewable energy tax credits for the wind turbines it manufactures. The company places tax experts at key decision-making positions in units around the world, helping put tax strategies at the forefront of many of its business choices. The company also employs an army of lobbyists to push for changes in the Tax Code. The company posted $26 billion in profits in the U.S. over the past five years, yet received a net tax benefit of $4.1 billion, according to the Times.

GE has been a longtime beneficiary of the Tax Code. Back in the 1980s, President Ronald Reagan, a former pitchman in GE’s TV commercials and host of TV’s General Electric Theatre, was so astonished by the company’s ability to avoid paying income taxes that he told his Treasury Secretary, Donald Regan, “I didn’t realize things had gotten that far out of line.” Reagan then helped shepherd the 1986 tax reforms through Congress, pushing GE’s effective tax rate to 32.5 percent. However, through the lobbying efforts of GE and other companies, other tax breaks have emerged to replace those that disappeared 25 years ago. Corporations now pay only about 6.6 percent of federal tax receipts today, compared to about 30 percent in the 1950s.

The company, along with other multinationals, is on the verge of getting even more generous corporate tax breaks enacted, with the main prize being a reduction in the statutory corporate income tax rate. An increasing number of companies and their friends in Congress have been pushing for a reduction in the corporate tax rate, which can be as high as 35 percent. In January, President Obama named GE CEO Jeffrey Immelt as the chairman of the President’s Council on Jobs and Competitiveness as part of the president’s efforts to appear more business friendly. The council is likely to propose changes in the corporate tax code, including a reduction of the statutory tax rate. They point out that the relatively high rate makes the U.S. uncompetitive with other countries that offer much lower rates.

However, many other companies, like GE, use a variety of tax breaks to lower their effective tax rate to close to zero. Google, for example, shifts much of its income and profits to low-tax countries such as Ireland, using strategies with exotic names like the Double Irish. With billions in profits booked overseas in indefinite tax deferral schemes, these companies are now pushing for a “tax holiday” that would allow them to repatriate their profits back to the U.S., but avoid paying taxes on the money.

A group of multinational companies has banded together for what they call the Win America campaign (see Treasury Opposes Corporate Repatriation Tax Holiday). Supporters include Apple, Cisco, Google, Microsoft, Oracle, Pfizer, Qualcomm and the U.S. Chamber of Commerce. They argue that a repatriation tax holiday would allow them to bring up to $1 trillion back to the U.S. and help create jobs here.

However, a high-ranking Treasury Department official, Assistant Treasury Secretary for Tax Policy Michael Mundaca, pointed out in a blog post last week that the last time there was such a tax holiday, in 2004, many of the corporate beneficiaries did little to add jobs. Instead, many companies used the money to buy back their own stock or pay dividends to shareholders.

Congressional leaders are divided on whether to support a repatriation tax holiday. House Majority Leader Eric Cantor, R-Va., reportedly supports a tax holiday, but some of the leaders of the tax-writing committees are more interested in a broader overhaul of the Tax Code, according to Bloomberg.com. A repatriation tax holiday could be part of that tax overhaul, especially as corporations aggressively lobby lawmakers and provide generous campaign donations for the 2012 elections.

Even though the Swiss government has agreed to provide the names of thousands of individual taxpayers with foreign bank accounts to the IRS, Switzerland remains a tax haven for many companies. A report on CBS News' 60 Minutes last Sunday highlighted how the Swiss town of Zug houses the nominal “headquarters” of thousands of U.S. companies, including Transocean, the company that owned the drilling rig involved in the BP oil spill disaster in the Gulf of Mexico last year. The company moved its headquarters from Texas to Switzerland two years ago, but the bulk of its employees remain in Texas.

Meanwhile, Congress continues to wrangle over billions of dollars in spending cuts, with the threat of a possible shutdown in the federal government again looming if they can’t come to an agreement or pass another in a series of continuing budget resolutions. In the drive to narrow the federal budget deficit, the pendulum appears to have shifted away from the closing of tax loopholes. But with spending cuts threatening to cut vital services to children, senior citizens, schools, the poor, and others across the country, Congress needs to take a closer look at forcing profitable companies to pay their fair share of taxes.