(Graphic courtesy The Washington Post)
As politicians, corporate leaders and lobbyists all push for a sweeping overhaul of the tax code to lower the rates faced by American businesses, a new report finds the theory that American corporations are grossly overtaxed simply doesn’t hold water.
In fact, some corporations are enjoying a tax rate in negative territory. General Electric paid a minus 45.3 tax rate between 2008 and 2010.
Two groups, Citizens for Tax Justice and the Institute on Taxation and Economic Policy, published a comprehensive new report detailing how nearly 300 profitable US corporations paid about half of the advertised 35 percent corporate tax rate over the past three years thanks to creative accounting and a slew of tax loopholes.
But the most shocking piece of data is that 30 profitable corporations paid zero less than zero federal taxes over the same period. That is a negative tax rate. As in, they get money back from the government.
Such numbers present a challenge for Corporate America and lawmakers who insist US businesses face a distinct tax disadvantage over their overseas counterparts, regularly pointing to the advertised 35 percent rate as a burden on their operations and a roadblock to hiring new employees.
Many of this country’s biggest companies paid no federal taxes — or even made money through credits and refunds from the government — over the past three years by using an array of loopholes and tax breaks, according to a report released Thursday.
The authors examined the finances of 280 corporations from 2008 through 2010 and found that 30 paid zero taxes or used loopholes to wind up with negative tax rates. Local utility Pepco Holdings paid the lowest rate of all the firms investigated, clocking in at nearly minus 58 percent.
Under the federal tax code, corporations are supposed to pay 35 percent of their profits in taxes. But the study found many of the companies used legal tax breaks that allowed them to pay lower rates than ordinary Americans.
The report, compiled by the nonprofit groups Citizens for Tax Justice and the Institute on Taxation and Economic Policy, was published as corporations and White House officials have pushed for a reform of the corporate tax code. Powerful business lobbying groups, including the Business Roundtable, have said they want lawmakers to lower the overall 35 percent tax rate in exchange for closing some loopholes. These lobbyists frequently cite this rate when arguing that U.S. firms pay more than their foreign competitors.
The response from some of the corporations named in the report as among those that paid zero taxes or substantially less than the advertised corporate rate has been swift and angry. Some called the report “politically motivated,” while others called it “distorted” and argued that they actually paid “billions” in US taxes without providing specific information.
Some corporations pushed back at the report, saying it relied on fuzzy accounting.The “findings in this and other recent reports have been more politically motivated than truthful,” said Robert Varettoni, a spokesman for Verizon, which was cited in the report for having a negative 3 percent rate from 2008 through 2010. “The fact is, Verizon fully complies with all tax laws and pays its fair share of taxes.”
The report said that 71 of the companies paid an effective rate of more than 30 percent over the three years. But roughly an equal number paid less than 10 percent.
The range between industries is wide. Retail and health-care companies, in particular, tend to pay more in taxes. These firms usually have less intellectual property that can be shifted overseas to take advantage of other countries’ lower tax rates. The report found they paid an effective rate of 30 percent over the three years.
By contrast, tech companies and manufacturers, including General Electric, paid far less. GE, for instance, paid a rate of minus 45 percent, the report said.
“The report is inaccurate and distorted,” the company said in a statement. “GE paid billions of dollars in taxes in the United States over the last decade, and we expect our overall tax rate will be approximately 30 percent in 2011. We believe the U.S. tax system needs to be reformed to close all loopholes, to lower the corporate rate and to provide a territorial system like every other major country in the world.”
General Electric and utility company PG&E were among those corporations that paid less than zero federal taxes over the past three years, according to the report.
While substantial blame rests with the loopholes created by Congress that are legally available to such companies, the report’s authors also indicated that “relentless” lobbying and accounting by corporations are also a factor.
The average effective tax rate for the companies over the period was 18.5 percent, said Citizens for Tax Justice and the Institute on Taxation and Economic Policy, both think tanks.Their report also listed General Electric Co, Paccar Inc, PG&E Corp, Computer Sciences Corp and NiSource Inc as among the 30 that paid no taxes. All 280 corporations examined were profitable over the period.
Corporations will say rightly that the loopholes that let them slash their taxes were perfectly legal, the report said.
“But that does not mean that low-tax corporations bear no responsibility … The laws were not enacted in a vacuum; they were adopted in response to relentless corporate lobbying, threats and campaign support,” the report said.
The wide disparity in tax returns and reliance on substantial loopholes among American corporations could lead to a surprising new ally in the fight for a fairer and more equal tax code.
Corporations that “aggressively” pursued loopholes benefited with tax rates reduced to virtually zero, while companies unable or unwilling to do so faced significantly higher rates. With such a gap, there is incentive for corporations to end what is a considerable competitive disadvantage with their competitors.
The study said that the shelters and loopholes in the current tax system rewarded companies that aggressively avoided taxes at the expense of those that did not. A quarter of the companies in the study had a federal tax bill of 35 percent of their profits, while a similar number had an effective rate of less than 10 percent.
“Companies that are paying their fair share ought to demand that the tax-dodging companies pay their fair share too,” said Robert S. McIntyre, the author of study. “So should the public, which is subsidizing them in terms of increased federal debt.”
Even without looking specifically at the corporations that are the most aggressive in pursuing tax breaks and tax loopholes, the effective US corporate tax rate is nowhere close to the advertised 35 percent. While the advertised rate would be considered one of the highest among industrialized nations, the actual effective rate paid by corporations puts the United States one the lower end of global corporate rates.
Forget 35 percent. According to the General Accounting Office, “the average U.S. effective tax rate on the domestic income of large corporations with positive domestic income in 2004 was an estimated 25.2 percent.”
Let’s see; corporations are experiencing record profits and they are holding on to cash. Are there really people out there pushing for a tax holiday and tax cuts? What we really need to do is protect small business from big business.
This is EXACTLY what OCCUPY is all about. They dont care about average citizens who are wealthy. Its about the companies and corporate execs who make money off of taxes and fund politicians to keep the tax code like it is so they can continue to exploit. Left and Right both are guilty of having greased palms in this department, and the media is painting this bipartisan movement as “leftist” to divide Americans on it. The more we fight amon ourselves the more Corporations win.
Conservatives have been very good at pushing the meme that corporations should not be taxed. That’s one subject that pops up all the time when I speak with conservative acquaintances.
Somehow, these folks have been convinced that they will end up paying that money anyhow; therefore it’s all right to tax individuals more, and tax corporations less.
And yeah, I’d sure love to get in on that negative 57.6% rate.
And the Republicans and fiscal conservatives still INSIST these companies still need their tax-breaks and loopholes! Worse they say cut aid to the poor, the unemployed, the seniors, the disabled, students, etc. How stupid are we, are you, to vote for such representation in Washington or even your own state, or hometown? We will get what we vote for and I guess we will deserve it!
We spend way more money on Corporate Welfare then we do on social programs like welfare and foodstamps.