Friday’s editorial: Ducking the IRS
In 2005, corporate America turned a $1.6 trillion profit. Even by Sinatra standards, it was a very good year. Why, then, did 25 percent of large American corporations pay no income tax — zero — that year?
Taxpaying Americans — scraping to pay their food, gasoline and medical bills — deserve an answer. If big companies sidestep the tax collector, the rest of us have to make up the difference in paying for national security, transportation, education and environmental protection. Either that or we pump up the national debt and leave it for our grandchildren to take care of.
The startling 25 percent figure pops out of a new report from the Government Accountability Office. But wait — as the infomercials alert us — there’s more. Yes, 25 percent of large American companies paid no corporate income taxes in 2005. But the tax-free figure was even higher for foreign companies that operate American subsidiaries: 28 percent.
And 2005 wasn’t exceptional. Between 1998 and 2005, 24 percent of large American corporations and 34 percent of foreign companies paid no income taxes in at least four of those eight years. These kinds of firms account for 90 percent of all corporate wealth.
The GAO report doesn’t specify how so many companies are managing to avoid taxation. But the answer probably lies in the arcane rules — which include countless loopholes along with justified tax breaks — of corporate tax law. The best accounting brains money can buy know how to massage numbers to make profits disappear from the American parts of businesses and reappear in operations of lower-tax countries overseas.
“If you’re really clever, you can do it within the letter of the law,” says Eric Toder, senior fellow at the liberal-leaning Tax Policy Center in Washington.
The result is an act of financial prestidigitation that allows companies to report the good news of profitability to shareholders and the bad news of losses to taxing authorities.
“It looks to me like the system is working the way it’s supposed to,” said Josh Barro, an economist at the conservative Tax Foundation. Most such companies are paying nothing because, tax-wise, they’re showing no profits.
Most untaxed corporate profits eventually return to the economy. Those who own stocks, whether directly or through various kinds of pension plans, get a slice of them. But the fattest slices go to wealthy people with big investments.
Indeed, nearly half of all stock dividends, which are paid from profits, wind up with the wealthiest 4 percent of families, according to government figures.
Sen. Byron Dorgan, D-N.D., who requested the GAO report and who is a member of the Senate Appropriations Committee, is not happy about the results. “The tax system that allows this wholesale tax avoidance is an embarrassment and unfair to hard-working Americans who pay their fair share of taxes,” Mr. Dorgan said.
But some think corporations still pay too much in taxes. Sen. John McCain of Arizona, the presumptive Republican presidential nominee, wants to cut the top corporate rate from 35 percent to 25 percent and add breaks for investment in equipment and research. With the federal deficit heading for half a trillion dollars next year, he might have trouble getting that through Congress.
In constrast, Illinois Sen. Barack Obama, the presumptive Democratic nominee, talks vaguely about closing “special-interest loopholes and deductions, such as those for the oil and gas industry.”
It’s hard to see any justification for additional corporate income tax cuts, considering that at least a quarter of the biggest companies already pay nothing. The system clearly needs an overhaul that would maintain incentives that truly contribute to the creation of jobs and a healthier economy, trash the special-interest tax breaks and see that profitable companies pay their share.
First of all, let me just preface my comment by saying that I get my ire up whenever I see the P-D talking about “taxes.” Secondly, I can pretty much guess that whoever wrote this editorial neither has a degree in economics or corporate tax accounting, which puts us on a level playing field.
What the editorial failed to point out is that the U.S. has the second highest corporate tax rate in the world which is essentially one of the reasons why companies take their headquarters and factories overseas besides cheaper labor and no unions. How is taxing corporations more going to bring back factories and jobs to the U.S.? I understand this is basically why InBev bought AB. Because InBev headquarters are in Belgium, the company is going to save an enourmous amount of money in taxes.
Socialists like Maxine Waters want to nationalize our healthcare industry
in order to control 1/7 of our economy. Other socialists talk about nationalizing our oil industry. Okay, so lets raise the taxes on the oil industry and what will they do in return? They will raise prices. I know that is something the Democrats want, but I don’t think most Americans do.
Here is the truth on Exxon’s taxes: http://www.freerepublic.com/focus/f-news/2055966/posts
Why is it I never see editorials about the Kennedys who have their family’s oil trust registered in Figi to keep from paying U.S. taxes? Why not go after all the tax-exempt organizations and foundations which are supposed to be non-partisan yet are anything but and are a great source for the rich to avoid paying taxes. And I would also like to know if unions pay taxes as an organization. They take dues from their members to buy political ads. Are they tax exempt? The SEIU recently launched ads against two GOP senators worth $1,l00,000.
Taxing corporations at all is self-defeating. Corporations are not tax-payers, they are tax-collectors. Any tax on the corp will be paid by one or all of these three groups: Customers, in the form of higher prices or lower quality merchandise, employees by way of layoffs or reduced wages and benefits, finally stockholders receiving lower dividends or reduced stock prices. Who are these three groups, you and I of course. Doubtingthomas
http://hosted.ap.org/dynamic/stories/E/EARNS_BELGIUM_INBEV?SITE=NYWHI&SECTION=HOME&TEMPLATE=DEFAULT
InBev does not pay a dividend. I guess it does not make a profit.
85% of the companies that paid no taxes also made no profits that year. American Airlines and General Motors utilized the “arcane loophole” of losing $862 million and $10.5 billion, respectively. Source: http://online.wsj.com/article/SB121875570585042551.html?mod=rss_opinion_main.
The good news for taxpayers is that if Congress keeps hiking up tax rates for businesses, we’ll all be unemployed as businesses continue to move overseas. That way, we, too, can avoid paying taxes!
http://www.grafshepherd.com
Taxation of earnings, corporate or personal, is counter productive. Why should a corporation pay more for growth resulting in additional jobs for American workers? Why should a worker be penalized for working overtime or two jobs with added taxes and often higher rates in the next bracket? Why are we taxing productivity instead of consumption?
If taxation was for support of legitimate government services instead of for redistribution of wealth and assets, government would not need nearly as much revenue and the most of the huge national debt would not exist.
When the mathematics and human nature catch up the leftists and the fools following them will discover, yet again, that punative taxation for the “common good” is not so good.
Right on, A#.
http://www.grafshepherd.com
The top 50% of taxpayers paid 96.7% of the taxes, and the top 1% paid more than a third. So much for your left-wing “soak the rich” rhetoric.
http://www.house.gov/jec/news/news2006/pr109-94.pdf
The reason we tax income and not consumption is because consumption taxes (such as sales taxes) are horribly regressive and hit the lowest rung of people in the economy the hardest.
I can almost see the reasons for a flat tax, but taxing consumption rather than income would lead to significantly more income inequality which would eventually lead to revolution.
“The reason we tax income and not consumption is because consumption taxes (such as sales taxes) are horribly regressive and hit the lowest rung of people in the economy the hardest.”
That may be true, but you do realize that a 20% tax on a pack of smokes doesn’t hurt nearly as bad as a 20% tax on 52″ Plasma TV, right? Plus, a consumption tax is self-limiting. Buy less stuff, pay less tax. Wish we could say the same thing about income taxes. You shouldn’t be punished for working harder.
Still, you might want to check out the FairTax. It has a nice mechanism to remedy that situation.
http://www.fairtax.org/site/PageServer?pagename=about_main
Yet another insipid P-D editorial demolished by readers armed with facts, logic and common sense.