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.
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?
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.
Its no accident but part of the Neo-Con idea to drive the middle class into poverty.
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 -
“..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.
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.
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.
I run a small company with only a few employees. And I pay taxes. Why aren't these big companies. It ain't right.
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.
Make sure your kids and grandkids know the term. That is what they will become.