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The Great Corporate Tax Heist
Remember the old Steve Martin routine on how to make a million dollars and not pay taxes: "First, make a million dollars... Second, don't pay taxes." Turns out Martin's joke is standard operating procedure for corporations in the United States -- only, in comparison, Martin was a piker.
Today, the Government Accountability Office (GAO) released a study on taxes paid by corporations. In what Sen. Byron L. Dorgan (D-ND) mildly called "a shocking indictment of the current tax system," the GAO found that about two-thirds of corporations operating in the US did not pay taxes annually from 1998 to 2005.
Now most corporations in America are start-ups or small, mom and pop operations that have adopted a corporate form to lower their tax rates. And a greater percentage of large corporations do pay some taxes. But in 2005, with corporate profits reaching new heights as a percentage of national income, the GAO found that over one-fourth -- 28% of large corporations paid no taxes. (It defined large corporations as those with assets of at least $250 million dollars or gross receipts of at least $50 million dollars.) They can tell you how to make $50 million dollars and not pay taxes.
Not surprisingly, the income collected from corporations has been declining as a percentage of GDP, with the burden transferred to your income and payroll taxes. According to a study by the Treasury Department, from 2000-2006, an average of 2.2% of GDP was collected in corporate taxes. This compares to an average of 3.4% in other industrial countries. The nonpartisan Congressional Budget Office projects that, under current law, corporate revenues will decline to 1.9% of GDP by 2017.
Why is this important? Well, the Bush administration, led by Treasury Secretary Paulson and conservatives led by John McCain are mounting a major campaign to cut the corporate tax rate even more, arguing that we are crippled competitively by having a US rate higher than any industrial nation other than Japan. "America has the second highest business [tax]rate in the entire world," says John McCain. "Is it any wonder that jobs are moving overseas? We're taxing them out of the country." But the GAO study confirms what we already knew: whatever the nominal tax rate, US corporations pay an effective rate among the lowest in the industrial world.
Yet the core of McCain economic agenda consists of breath-taking corporate tax breaks. He calls for cutting the top corporate rate from 35% to 25% and allowing corporations to write off investments in the first year. Combined, the Tax Policy Center wonks cost these at over $1.3 trillion over 10 years. Len Burman of Tax Policy Center estimates that in total, McCain would cut corporate revenues by about 50% from current levels. They'll be making hundreds of millions of dollars and not paying taxes. This is no joke.
To pay for these tax breaks, sustain the Bush tax cuts, add more tax breaks AND balance the budget in four years, as McCain promises, will require heroic cuts in spending. Not military spending; McCain promises to increase that. How will he do this? On the stump, McCain promises to veto any earmarked spending. But that is a gesture, providing about $18 billion a year. (And he isn't exactly consistent. McCain often tells folks who defend a local project that it is the process, not the individual project that he opposes.) Perhaps that's why McCain calls for raising Medicare taxes on seniors with over $50,000 a year in income and taxing employer-based health care benefits for families. Working people and seniors will help pay the tab for the corporate tax give-away.
It's hard not to wonder about the pure, contrary, inanity of the current conservative position. Our military is by far the strongest in the world, while our trains are among the slowest and our sewers are collapsing. So they propose raising spending the military and cutting domestic investment. We suffer gilded age inequality, with the wealthiest 15,000 families -- one-one hundredth of one percent of the population -- capturing fully one-fourth of the entire income growth from 2000 to 2006. Their average income rose from $15.2 million per year to $29.7 million per year. Meanwhile, the rest of us -- 133 million households that make up 90% of the country -- divided up 4% of the nation's income, adding about $305 to our average $30,354 income. So conservatives push for more tax cuts for the wealthy, while proposing to tax employer based health benefits. Corporate profits (prior to the recession) have catapulted to what is by far the highest percentage of national income in the past half century. So they want to cut corporate taxes, inevitably increasing the burden on labor. The economic future looks dim because consumers, drowning in debt, are cutting back. So they suggest cutting taxes on corporate investments will generate new investments and growth -- as if companies don't need someone to buy the products they make.
Maybe that will be Steve Martin's next routine: How to sell more stuff and not have customers. Somehow, it doesn't sound so funny.
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here's one little flaw in this article, and believe me, there are many.
The author claims that the tax policy analysts say McCains plan to lower corporate income tax rate to 25% will result in $1.3 trillion dollars less in tax revenue. Maybe, but the page he cites also says "this table has been update, click here" If you click there, you will see the revised number is $750Billion. A lot, to be sure, but 42% less than the sexy $1.3 trillion number the author uses.
Shall I go on?
1998-2005?
Typical that we get this information now.
Not only is oversight badly, badly needed going forward, but these shenanigans need to be kept in serious check on an annual basis.
And for all the talk that higher taxes will lead to fewer jobs, I would like to point this stuff out. If the major corporations actually paid their taxes, it's likely that the mid-small businesses could actually have a chance to survive. Even thrive.
To look at this another way, consider that major corporations have gotten the run of the place for 12 years and the taxpayers STILL got to foot the bill for Bear Stearns, Countrywide and all the others. Unstinkinbelievable.
i've had it with these screwball conservatives. 8 years of it is enough and to think, after all we've been through, for Americans to be seriously considering McCain as our next heir to the throne is absolutely mind boggling. Flood up-Trickle down economics without equity and oversight does not work.
I don't know why it's important whether McCain wants to slash corporate taxes again, since they don't pay anything in the first place. Technically, they wouldn't be getting any more of a benefit than they are now. Subsidies are one thing, but doling out what would essentially be illusory tax cuts doesn't bother me in the least.
This would be the tax refund ... you know how that works, pay nothing in but get lots back!
Well, in that case . . . lol
jinxed:Our gov badly needs the revenue from that money hidden away , HOW CAN WE STOP THAT FROM HAPPENING?
His theory of economics is from the advisors who aim to eliminate taxes for corporations all together. That's why the GOP is in favor of subsidies to corporations.
Its no accident but part of the Neo-Con idea to drive the middle class into poverty.
Corporations don't pay taxes when there's no income to pay taxes on, period. You selectively choose statistics for one year, while ignoring the fact that corporations (like individuals) are permitted to carry losses from previous years forward. In other words, a corporation may "earn" $30mm one year, but if it lost $10mm a year for the previous three years its net income is zero and therefore is not required to pay income taxes for that one year (although note there is a limit to the number of years a corporation can carry its losses). Secondly, one of the main factors behind the results in the GAO report is the increased use of the "S Corporation" structure. While technically corporations, an S Corporation does not pay corporate taxes like a traditional business. The taxes are paid at the shareholder level and therefore are not reported as corporate taxes. The taxes are paid nonetheless, they're just not reported as "corporate" taxes under the code. I agree that significant changes need to be made to the tax code. However, attempting to advance an argument for change in American taxation while ignoring and distorting the basic fundamentals of the tax code does little to encourage a healthy, informed debate regarding potential solutions - which in my opinion is what this country needs most.
If you wish to conduct an informed debate, when do you plan to start? Your statement that individuals are permitted to carry losses from previous years is basically false. If an individual spends more than he makes in a year on medical expenses, for example, he does not get to carry the excess loss forward. Please correct yourself.
Key point here is you defining "profits" and "income" as the same thing. At least as far as I understand it - and I admit I could be wrong - I think part of the argument here is that there should be a fundamental change to this concept. Corporations deliberately manage to as minimal a profit as possible so as to avoid dealing with the issues of what governing bodies want to do with profit. To taxing bodies, "profit" is like a lottery win and there is no consideration as to how it compels businesses to operate.
If corporate tax policy was more analogous to individual tax policy, people may not be as disgusted by how easily they appear to get off the hook. As an inverse example, if I were taxed like a corporation, I'd have no profit/income, because my grocery bills, clothing expenses, car payments, - EVERYTHING would be an expense associated with running my house. So I wouldn't have to pay any taxes on the money I brought in. And the resulting $0 profit would be the same if I were making $50,000 a year and scraping by - or if I were making $250k and splurging on ridiculously expensive vacations and impulse buys.
So if all businesses had "income" redefined as "revenue" instead of profit, and they had some payroll writeoffs (like individuals have mortgage interest and dependent write-offs), the system may become a little more fair - or at least smell a little fairer -
Our government as it exists isn't capable of developing a sensible debate or discussion that addresses reality as fair and equitable taxes are concerned. Profiles need to be looked at and a tax system developed that actually provides real world tax revenues that are fair in perspective to how much money is being generated. What is the purpose or benefits of giving oil companies tax credits or breaks amounting to tens of billions of dollars? The same argument or question can be asked or made for any other company's capital expenditures being subsidized. Oil gets much of it's exploration and development costs subsidized but then we aren't supposed to step in a regulate profits? Something is wrong with that picture. There is no validity to arguments that cutting highly profitable corporate taxes adds to or increases economic health in terms of spending in other areas. Large corporation's largest expense seems to be in fat mega buck incomes for those at the top so it doesn't make any logical sense to shield large profits from taxes and then provide low well shielded incomes for those executives pulling down incomes into the millions to hundreds of millions. Loopholes designed for the wealthy will only add to our government coffers to be distributed for programs that benefit the country and the bulk of it's people.
Remember the old Bob Borosage method of writing news without any facts?? No? Well just read his articles for proof. He states,
"..conservatives led by John McCain are mounting a major campaign to cut the corporate tax rate..", yet Obama does the SAME! Read the following excerpts from Obama"s own web site:
Barack Obama will double funding for the MEP,
Obama wants to make the Research and Development tax credit permanent,
Barack Obama will eliminate all capital gains taxes on start-up and small businesses to encourage innovation and job creation. Obama will also support small business owners by providing a $500 "Making Work Pay" tax credit
Barack Obama introduced the Patriot Employer Act of 2007 to provide a tax credit to companies that maintain or increase the number of full-time workers in America.
The above 2 posts are accurate and correct, the article is cherry-picking statistics. Many corporations take losses in a calendar year while profiting the next year. Small business owners get the same benefit of writing off losses as well, a nice gift since it will normally take the average business 3 years to turn profit. The same people who complain about corporations forget that they also provide things like jobs, benefits, and products for consumption. These "evil" corporations provide an income stream for people.
The tax code used to allow people with income that varied from year to year -- sales people, writers, students just starting on their careers -- to do income averaging so they wouldn't get a low tax bill one year and a whopping one the next. They took that away from us a long time ago. I don't mind helping small businesses get rolling but most tax breaks and credits end up going to the giants.
thanks, qwerty.
Just wondering--I don't know about this stuff and have no ax to grind--how many of those corporatons were/are single people or a couple having businesses, and while the corp pays no taxes, the individuals pay typical taxes on their income. Could that be part of this, and might it all be over-stated?
I have a small business, and trying to claim 0 net income is the biggest red flag you can use. any and all profits are passed on the owners/share holders, and they pay normal income taxes on that number. Income averaging isn't generally allowed in small business, but if you make in the multi million dollar figure, I guess you can do what you want.
America needs to go back to 1943 when federal tax collections from corporations was 39.8 percent of total federal tax collections. Moreover, the federal government needs to bring back the "revenue tariff" to relieve the average worker of having to pay the income tax (the 1913 personal tax exemption, in 2005 dollars, would be 55,000 dollars!).
I would be all for that.
Of course to balance the budget we would need to cut some things. Let's start with the big ticket items. I suggest the bloat in the military and intelligence services. They are the 800 pound gorilla in the fed budget after all.
...sir, with all due respect to your essay and excellent contributions to this site, this fact and the trend towards "corporations uber alles" in terms of tax favoritisms has been well known for a while among left of center types. additionally, no one here has yet mentioned the multiple , miultibillion dollar stipends fed govt has given away to corporations such as the $15,000,000,000 no strings attached collective stipend handed to exxon , chevron etc in winter 2006....dont expect the corporate owned MSM to run with this ongoing story...americans dutifully knew more about anna nicole smiths drug addled corpse and will know more about michael phelps eating habits and brittany spears weight loss secrets in the coming months than any of this information you present. a media owned by corprations promulgating the dumb 'em down and turn 'em into consumer gluttons agenda is the mecahnism that allows corporations to win..Obamaism cant change that..... indeed, mussolini would have been so proud of todays blood -free corporate coup of the american political and cultural process.
Case Study
Exxon's 2007 "Income Taxes" were $29.8b on Pretax Income of $70.5b. Of that $29.8b, $5.1b was in the US, $24.7b was offshore. Tax "Cash payments" were $26.3b.
The majority of Exxon's taxes are Offshore, as is the majority of Income. Exxon's US Pretax Income was $15.4b; Offshore was $56.3. Exxon's blended Income Tax rate was 42.3%. 33.1% US, 43.9% Offshore
How should we balance the interests of shareholders, customers and the US?
Exxon legally offsets foreign tax payments against its liability. Should this be changed? Should Exxon pay an additional $24.7b to the UST, eliminating 61% of its after tax profits?
Or, should Exxon be penalized because it is paying 33.1% in the US vs. 43.9% overseas, or 42.4% overall? Is 42.4% enough, not enough? If so, what is enough?
Beyond "Income Taxes," Exxon paid $74b of Sales Taxes/Other Taxes/Duties (subtracted before Pretax Income), $9b in the US and $65b exUS, for a Total of $104b, $14b in the US and $90b Offshore.
In all, Exxon actually paid $104b in taxes/duties or 2.6 times more than its after tax profit. $14b of this was paid in the US. Is this enough? Too much? Not enough?
I don't know the answers, but simply saying that the solution is "raise taxes" is inadequate given the complexity of the issues and the implications for Consumers, Employees, Pension Funds and Private Investors.
Hmmm, I see. All Americans owe Exxon money. About $ 4.00 a gallon and everyone will be even.
I'm not sure but I think you are asking for a debate on the subject. Is that right?
I was just wondering what people thought. This is a complex argument with jobs and retirement funds in the mix. I thought I'd throw out some facts and see what folks had to say. It's easy to say that corporations pay too much tax (from the right) or not enough (from the light). Saying it isn't enlightening. Figuring out what to do in such a way that the interests of millions of people are balanced is what is hard.
Major tax breaks for lets say major oil companies are given so they can develop better ways of increasing production and equipment now let see how many refineries have they built in the last twenty years. I believe the number is 0. Major corporate welfare is a hell a lot more than all the social programs. We have spent over 80 Billion dollars in Iraq of tax payer money with private no bid contract with the likes of Haliburton, Blackwater and others. What amount of this was taxed not one damn dime. We can change this culture by getting off our duffs and voting for Obama.
Corporations don't pay taxes, individuals do. If you have a problem with that, there's always the FairTax, which taxes all purchases and everyone pays equally. Would save the $275 Billion a year we pay to have the IRS collect income taxes....
And corporations will pay that tax too? Maybe when pigs fly and the cow jumps over the moon! Do you really believe the mega-rich will pay this consumer tax too? LMAO
Corporations are legally treated as individuals. What are you, 14?
By law, corporations have the rights of 'individuals.' Therefore, they need to pay, too, or just take away those rights, which would be the better solution.
But hey, I'm talking to Adam Smith, who must be really disgusted that this leveraged and tilted international market is considered "free" and "capitalist."
The FAIR Tax.
HAHAHAHAHAHAHAHAHAHAHAHAHAHAHA!!!!!!!!!!!!!!!!!
If a family of four has an income of 30,000/year. They pay the FAIR tax of 17% on ALL purchases. But, because this family is living near the poverty line for a family of four, they do not save any money and pay every penny out in purchases of clothes, food, car/gas, housing, etc. So effectively, their tax rate is now 17% instead of the 15% that it once was(and actually it's less because of deductions and tax credits). 17% of 30K = $5100. THAT is over $400/month or 1/6 of their income, that leaves this family of four with $24,900, something that people of that low income cannot afford. NO deductions, NO loopholes, NO tax credits. THIS FAMILY PAYS MORE IN TAXES.
Now someone making a $1,000,000/year they effectively save $100,000 in retirement and pension funds. So the rest , $900,000 is taxable through purchases. Their tax rate is also 17% because now everyone pays the FAIR tax instead of the 35% they used to pay. They pay $170,000 in taxes where they used to pay $315,000. They SAVE $145,000. Even if they paid at the old rate of 35% they would have had $585,000 to spend + $100,000 saved. Now they have $730,000 to spend +$100,000 saved. THIS FAMILY GETS MORE MONEY.
That's why flat taxes are called REGRESSIVE taxes. Because they shift the tax burden onto those least able to afford it.
Uh, excuse me adamsmith--I have visited http://www.fairtax.org and have come to this basic and obvious conclusion--this so-called "fair tax" you advocate is nothing more than a STEEP NATIONAL SALES TAX IN DISGUISE--a tax that will get levied ON TOP OF THE SALES TAXES us working class folks already pay AT THE STATE AND LOCAL LEVEL OF GOVERNMENT.
If businesses can avoid income tax completely, their AMT should be a flat tax (thanks for the idea neocons) applied on their revenues, not on their income. No free rides on US infrastructure (highways & airways, defense, EPA, Homeland Security etc) for firms that do not pay any federal taxes. And no legal protections either - revocation of rights to operate for failing to pay the flat tax on revenues.
Best idea I've heard in years!! Lets face it, the wear and tear on our infrastructure (roads/bridges/sewer etc.) is caused by business since they are the main users of such. I think it is only fair business should pay for that wear and tear especially BIG business. Small mom & pop and startup companies pay taxes (just ask them how much they pay) so why should big business be exempt? Makes NO sense to me.
Exactly. Gain the most from the use of commons and pay the most. That is the capitalist way.
I run a small company with only a few employees. And I pay taxes. Why aren't these big companies. It ain't right.
Interesting idea. Do you have some numbers to back it up? For example, how would it work for your local supermarket which operates now on an after-tax profit margin of 1.9% and a software consulting firm that operates on a margin of 15 or 20%. Would they each pay the same flat rate on their top line revenues? If so, how would you make it fair so that the software guy doesn't get rich and the supermarket guy doesn't go out of business?
PLEASE send this to every radio and television news outlet in the USA. Send it to congress as well.
And the rest of us are paying for a half-trillion dollar (or whatever it's up to now) "defense" establishment whose primary function is protecting the foreign investments of corporations which pay little or no taxes.
And please don't forget the precious lives of nearly 5000 American troops in both wars. And tens of thousands wounded. Nearly 100,000 Iraqis, dead. For our theocratic, oligarchic, plutocracy. Goodby Democracy, Goodby Constitution.
So true - but do we people get any wiser. People have always been expendable. Wars are fought on the backs of the poor to enrich a few said a famous general.
And here we go again, falling for the word terrorist and Muslim, etc. what a hoot.
Used to be the word COMMUNIST, COMMIE, etc., the word has been replace, updated
even, and we are still stupid.
Hello Fodder.
Make sure your kids and grandkids know the term. That is what they will become.
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Posted August 12, 2008 | 02:52 PM (EST)