Corporate taxes: Backing opinion with facts
Reference Editorial 8/15/2008, “Ducking the IRS”I found the piece on corporate America ducking tax responsibility hard to believe, so I randomly checked a few American companies income statements to see what I would find. Here’s what I found for some large corporations in the 2005 tax year:Conoco Philips – $2.7 billion dollarsIBM – $4.2 billion dollarsMicrosoft - $5.7 billion dollarsBoeing – $257 million dollarsBerkshire Hathaway – 1.6 billion dollarsRaytheon - $498 million dollarsWalgreen’s – $213 million dollarsJohnson & Johnson - $3.2 billion dollarsSouthwest Airlines - $320 million dollars In general, profitable companies pay their taxes at approximately the 40% rate. I would love to see some of the names of the companies that didn’t pay, but none were offered. I suspect you would find that those paying no taxes in 2005 had no earned income. One of two things are going on here. Either this story was politically motivated to make someone or some agency look bad to achieve your political goal, or it was poorly written with vague generalities and short on factual information to help readers make up their own minds. Maybe you could clarify with facts to help your readers form an educated opinion.
Oliver Martin
Swansea
David H:
I think you have read far too much into my previous posts. The original letter writer and others here made overly simplistic arguments that (a) corporations who make money must be paying taxes, and (b) corporate taxes are passed on to consumers in full. Those are what I was rebutting.
Given that our government has chosen “income” as the metric that will bring in most of its revenue, I have no particular objection to legitimate business expenses being used as an offset in the calculation of taxable income, nor to carrying over losses to a year in which there is gain. But it’s not intrinsically obvious to me that ACRS depreciation efficiently maximizes government revenues relative to straight-line depreciation, or that the 15 year goodwill amortization maximizes revenues relative to a longer period, or that NOL carryovers must be unlimited (which they sometimes are, as you know).
As for bonusing out the earnings, there’s a fine line between reasonable compensation and avoidance of the corporate income tax. If the company for whatever reason does not operate as a pass-through entity for federal income tax purposes, it shouldn’t be able to beat the government out of its share of the income.
Then there’s this: “It is well documented that the U.S. is losing capital to other countries due to our very high corporate income tax rates.”
I consider that to be dogmatic nonsense, and offer as proof the fact that such “well documented” conclusions are generally found in the writings of the endowed thinkers at places like Heritage, who have already betrayed themselves as wedded to a particular economic viewpoint.