INCOME TAXES

Pretax earnings from continuing operations consist of the following:



	2014		2015	2016
United States	$	1,736	2,688	1,312
Non-U.S.	1,455		1,119	1,004
Total pretax earnings	$	3,191	3,807	2,316

The principal components of income tax expense follow:



	2014			2015		2016
Current:
Federal	$	623		831		394
State and local	47			86		11
Non-U.S.	416			398		305

Deferred:
Federal	(132		)	12		2
State and local	(7		)	(1	)	4
Non-U.S.	6			(59	)	(19	)
Income tax expense	$	953		1,267		697

Reconciliations of the U.S. federal statutory income tax rate to the Company's effective tax rate follow:



	2014		2015		2016
Federal statutory rate	35.0	%	35.0	%	35.0	%
State and local taxes, net of federal tax benefit	0.8		0.7		0.5
Non-U.S. rate differential	(3.6	)	(2.4	)	(2.9	)
Non-U.S. tax holidays	(0.8	)	(0.9	)	(1.1	)
U.S. manufacturing deduction	(1.5	)	(1.2	)	(1.8	)
Gains on divestitures	—		1.8		—
Other	—		0.3		0.4
Effective income tax rate	29.9	%	33.3	%	30.1	%

Non-U.S. tax holidays reduce tax rates in certain foreign jurisdictions and are expected to expire over the next two years.

Following are changes in unrecognized tax benefits before considering recoverability of any cross-jurisdictional tax credits (federal, state and non-U.S.) and temporary differences. The amount of unrecognized tax benefits is not expected to change significantly within the next 12 months.



	2015			2016
Unrecognized tax benefits, beginning	$	120		84
Additions for current year tax positions	7			12
Additions for prior year tax positions	8			16
Reductions for prior year tax positions	(9		)	(13	)
Reductions for settlements with tax authorities	—			(4	)
Reductions for expiration of statutes of limitations	(42		)	(9	)
Unrecognized tax benefits, ending	$	84		86

If none of the unrecognized tax benefits shown is ultimately paid, the tax provision and the calculation of the effective tax rate would be favorably impacted by $48, which is net of cross-jurisdictional tax credits and temporary differences. The Company accrues interest and penalties related to income taxes in income tax expense. Total interest and penalties recognized were $2, $(4) and $3 in 2016, 2015 and 2014, respectively. As of September 30, 2016 and 2015, total accrued interest and penalties were $21 and $20, respectively.

The U.S. is the major jurisdiction for which the Company files income tax returns. U.S. federal tax returns are closed through 2012. The status of state and non-U.S. tax examinations varies due to the numerous legal entities and jurisdictions in which the Company operates.

The principal items that gave rise to deferred income tax assets and liabilities follow:



	2015			2016
Deferred tax assets:
Net operating losses and tax credits	$	138		164
Accrued liabilities	245			277
Postretirement and postemployment benefits	86			82
Employee compensation and benefits	168			206
Pensions	164			271
Other	161			158
Total	$	962		1,158

Valuation allowances	$	(109	)	(132	)

Deferred tax liabilities:
Intangibles	$	(500	)	(510	)
Property, plant and equipment	(236		)	(239	)
Other	(51		)	(51	)
Total	$	(787	)	(800	)

Net deferred income tax asset	$	66		226

Current deferred tax assets, net were $400 and $305 as of September 30, 2016 and 2015, respectively, and noncurrent deferred tax liabilities, net were $174 and $239. Total income taxes paid were approximately $950, $1,590 and $1,310 in 2016, 2015 and 2014, respectively. Approximately half of the $164 of net operating losses and tax credits can be carried forward indefinitely, while the remainder expire over varying periods.