Representation Without Taxation: Study Says Most Corporations Avoid US Income Tax

WASHINGTON — Two-thirds of U.S. corporations paid no federal income taxes between 1998 and 2005, according to a new report from Congress.

The study by the Government Accountability Office released Tuesday said about 68 percent of foreign companies doing business in the U.S. avoided corporate taxes over the same period.

Collectively, the companies reported trillions of dollars in sales, according to GAO's estimate.

"It's shameful that so many corporations make big profits and pay nothing to support our country," said Sen. Byron Dorgan, D-N.D., who asked for the GAO study with Sen. Carl Levin, D-Mich.

An outside tax expert, Chris Edwards of the libertarian Cato Institute in Washington, said increasing numbers of limited liability corporations and so-called "S" corporations pay taxes under individual tax codes.

"Half of all business income in the United States now ends up going through the individual tax code," Edwards said.

The GAO study did not investigate why corporations weren't paying federal income taxes or corporate taxes and it did not identify any corporations by name. It said companies may escape paying such taxes due to operating losses or because of tax credits.

More than 38,000 foreign corporations had no tax liability in 2005 and 1.2 million U.S. companies, or 66.7 percent of them, paid no income tax, the GAO said. Combined, the companies had $2.5 trillion in sales. About 25 percent of large U.S. corporations _ those with at least $250 million in assets or $50 million in receipts _ did not pay corporate taxes.

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The GAO said it analyzed data from the Internal Revenue Service, examining samples of corporate returns for the years 1998 through 2005. For 2005, for example, it reviewed 110,003 tax returns from among more than 1.2 million corporations doing business in the U.S.

Dorgan and Levin have complained about companies abusing transfer prices _ amounts charged on transactions between companies in a group, such as a parent and subsidiary. In some cases, multinational companies can manipulate transfer prices to shift income from higher to lower tax jurisdictions, cutting their tax liabilities. The GAO did not suggest which companies might be doing this.

"It's time for the big corporations to pay their fair share," Dorgan said.

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On the Net:

Government Accountability Office: http://www.gao.gov

(This version CORRECTS that 25 percent of large U.S. corporations paid no corporate taxes, not 25 percent of all U.S. corporations.)

Comments

[GenXLiberal]

Take their money from the Cayman Islands!!! They use our roads, our phone lines, our resources, our people and don't want to pay their fair shair. With the money in those accounts, we could use it to pay down the national debt. Whose with me?

[soulfulnotes]

First and foremost, lets take away corporate personhood.

[SneathLane]

Amen! Corporations don't behave like a person, can't be held accountable like a person, and have no ethics or loyalty. They should not be treated as people under the law - that's an abberation of US law, its not how corporations are seen in other parts of the world.

[ibsteve2u]

Most don't pay taxes, and yet I STILL have to hear Republicans moaning "The U.S. has the 2nd highest corporate tax rate of all nations in the world!" all of the time - even as the facts suggest that the corporations and their puppets moan about taxes primarily because they want to be able to shed the expense of the lawyers and accountants they use to avoid taxes now.

We way need to go to a flat tax rate...

[vippy]

We pay such high taxes because 43% go directly to the military. We all have to suffer for being
the bully on this globe. However, I know, that Europe's taxes may seem high but those include
health insurance. If you consider this then we do not pay nearly as much in taxes. Have you looked what health insurance costs here for a family? Out of reach for most.

[Egalitare]

Let's not lose sight of the fact that Corporate Taxes are essentially a fee paid to limit investors from liability beyond their investment. If paying Coporate taxes is "just too hard," perhaps we should simply eliminate the corporate tax structure and allow all personal assets to be subject to unlimited liability.

[JD294]

alternative minimum corporate tax?

[Erdgeist]

What cures the whole mess is the "import tariff" and the "revenue tariff" both which made the U.S. an economic giant in the past. All this was abolished in 1973 with free trade--it has been downhill ever since (cp. Dr. Ravi Batra). With a revenue tariff alone we could raise the personal tax exemption to 60,000 dollars instead of 3,400 dollars. Talk about an economic shot in the arm! Indeed, the economy can only recover from the demand side--never from the supply side.

[zakwouldhave]

As soon as an administration or congress goes after corporations they will swiftly be labeled "job killers". The middle class can't catch a break for doing the right thing.

[formerprosecutor]

"Only poor people pay taxes"___Leona Hemsley

This whole system makes me sick; I pay almost 40% of my income for taxes. I have actually refused raises , that would end up putting in another tax bracket and have a LOSS of income. The average wage earner just cannot craete a bunch of "legal fiction" loopholes to avoid paying there fair share. Some of these CEO's make Tony Soprano look like a good citizen.

[PublicAdvocate]

Its true that many of the wealthy systematically abuse and destroy our financial system for personal gain and glory among elites. Many buy special political access with their wealth to evade taxation and secure corporate welfare for their business failures.
We need to make sure that neither the good American citizens nor the legitimate and hard working businesses are not compromised by the nefarious dealings of a minority of unethical businesses and elites. Ralph Nader calls for more transparency and sunshine laws to insure that businesses are not abusing their privelege to operate in the USA. That's a good moral solution. Our tax and monetary policies should reflect honesty, integrity and reward work and talent...not corruption and cronyism and entitlement.
In regards to estate taxes, a 100% tax on all estates over $1 million dollars is probably the fairest way to go. This will insure that those who did not work for their money should not automatically be entitled to it. Additionally, it will return money back into the economy for taxes and new businesses rather than being locked up in idle investments and offshore bank accounts.

[CRayD11]

Agreed... except that the GAO report suggests that a majority of those wealthy businesses and elites are operating nefariously.

[vippy]

Nader should have put his name in the hat at the beginning. I like his sound vision.

[OldSFMJT]

Sorry, but the simple reality is that corporations and companies DON'T PAY TAXES! THEIR CUSTOMERS DO! Corporations look at taxes just like any orther cost of doing business, and those costs are passed on to the customer! Levin & Dorgan, et al, are simply doing what they always do - playing to the lowest common denominator...spouting feel-good crap that ultimately costs the little guy!

[GenXer]

That may be true to a degree, but they do enjoy infrastructure, roads and bridges, water and energy, schools and universities, fire departments, police protection, and military protection. My point is, they are consumers of community and public resources, and it is only fair they pay for their consumption through taxes like the rest of us.

[OldSFMJT]

Absolutely. And a really excellent observation that I really hadn't considered before! Thanks.

[shaunmarie]

Actually - taxes on profits cannot be passed along to the consumer, as those pass alongs would simply mean higher profits, and therefore higher taxes.

Think before you spout the Republican Party Line please.

[isis]

How do you expect them to pay taxes and buy off politicians at the same time?!

[dadw5boys]

WHY PAY TAXES WHEN THERE IS NO ATTORNEY GENERAL OR JUDGE THAT BUSH HAS APPOINTEED THAT WILL MAKE YOU?

ONLY THE POOR HAVE TO PAY. WE MIGHT NOT PAY MUCH BUT WE PAY AND SALES TAXES TOO.

[gladys46]

Working people pay ... payroll taxes used to be the center, what holds america up!! With the steady loss of decent paying jobs in this country and corporate greed what is the dollar worth anyway!!?? What is the research of those such as Romey who evade taxations by putting their fortunes in off-shore accounts!? Where is that study!?

[iambusto]

How about you change the tax law first.

then blame the corporation if they are not paying enough taxes. Dont blame the corporations in following the already existing tax law full of loopholes.

[dadw5boys]

How about putting someone at the head of the IRS who is no a Politco. Someone who will collect what is owed and not look the other way like the Bush Appointees .

Also look at all the money Bush cut from the IRS budget. They need people to do the work but with no money thay can't hire people.

[formerprosecutor]

Are you kidding? First, the IRS has never (until they go into bankruptcy or some other agency recognizes their "criminal enterprise", then the money is gone) "gone after" (audited) these big corps; the big corps KNOW their tangled web of accounting is so dense as to preclude any real investigation. Second, they evidently have plenty of auditors to harrass everyday people for (example) claiming a child their spouse already claimed ( oh! a thousand dollars..ooohh!). Third, If the IRS was interested in auditing these corps, they would have already done it. Grow up! What we need to do is go to straight across the board tax for these big corps, based on their adjusted gross income NOT their net income.

[ejay579]

What do you mean "already existing laws"? Why do you think the laws are there to begin with? How do you think loopholes are created?

[Chubbster]

Whatever these corporations are doing it is in compliance with the tax laws. So everyone cease the ritual corporation bashing, stop the whining and gnashing. Show some discriminating intelligence. Turn your attention to the tax laws themselves. As we all know as individuals, these laws are a complicated rats-nest of a tangled interpenetrating mess. And finally consider that all efforts to rationalize, clarify and simplify the tax code have been consistently blocked by the Democratic side of the aisle. Ask yourself why Congressional Democrats prefer the laws to be the way they are.

[feo]

Wrong. Corporate Republicans constantly whine about high corporate tax rates, even though tax laws are wreitten by corporatist Republicans and even though corporations, in fact, hardly ever actually pay any taxes.

[PublicAdvocate]

Chubbster,

Is cooking the books, restating earnings after CEO's cash out, back dating stock options to cheat investors, opening offshore mailboxes as "corporate headquarters" to launder earnings and evade taxes, offshoring jobs that do not comply with agreed upon environmental and workers safety standards through the WTO/NAFTA, and employing under the table illegal aliens legal in compliance with tax laws? If so, why have some CEO's like Ken Lay and Dennis Koslowski been convicted criminals? Weak enforcement, low ethical business standards, endemic corporate corruption and deception is hard at work here.
Sunshine and transparency laws, shareholder empowerment, as well as mandatory government auditing and much stricter accountability laws regulations need to be instituted to make sure that we return a business culture of law and order. Good businesses that serve the public first and foremost need not fear regulation and should be rewarded. But corrupt businesses and overcompensated* CEO's need to be exposed and punished for their unethical (and often blatantly illegal) behavior as a malevolent threat against the public good that threaten our nation's financial and moral integrity.
* CEO's earnings must be capped at $1 million maximum yearly wage to protect shareholder earnings, insure future fiscal solvency, and promote wage fairness so that lesser paid employees will not be needlessly underpaid.

[zjr909]

Though it sounds fair that business losses shouldn't be taxed, the premise would be a lot fairer if applied across the boards. Suppose Joe Six-Pack takes a big hit (let's say at the race track) and loses his shirt - can he go to his Uncle Sam and ask not to have to pay taxes for that year since he has nothing to show for his income? Yeah, sure he can. And when his kindly Uncle stops laughing and cries "Next!", Joe Sixpack can return home to find a pot of gold buried in his backyard.

[WorkingClass]

Corporations should not be immortal. They should be granted a charter for a limited time and only if they can demonstrate that they serve the greater public good. But they should not be taxed. Only people should pay taxes.

[iambusto]

looks like someone didnt go to school beyond college. shoulda taken corporate finance 101 there fella.

a corporation doesnt exist to serve greater public good. period.

[WorkingClass]

Corporations are not created by God. They are created by law, a function of government. The government could require that corporations serve or at least don't harm the public good.
But a corporation is a piece of paper and cannot pay taxes. The taxes will be paid by the officers, employees, share holders or customers, all of which are people.

[DXM]

First of all, corporations do NOT exist to serve the public good. They exist to make a profit for their share holders. However, there is some merit to the idea that corporation should not pay taxes (as this story shows, the majority of them don't pay anyway). The tax code should instead be changed so that those who profit the most from corporate activity are taxed. I know that already happens but the tax rates should be made significantly higher on individuals making more than $250K and start treating dividend and capital gains as regular income. And while we're at it, why not introduce a 50% tax bracket for income over $10M. Some of those fat cat hedge fund managers making $200M+ in a year can certainly afford to cough up $100M+ for the public good and still afford that new place in the Hamptons or that second Learjet.