Respectfully submitted by Lawrence Rafferty (rafflaw)-Guest Blogger
While we have discussed the fairness of the taxes paid and not paid by large corporations in the past, the alleged high corporate tax rate is once again in the news. It seems that after contraception the Right’s most consistent accusation is that the corporate tax rate is way too high for corporations to compete in the world market. The facts seem to differ from those claims however.
“Corporations are lobbying for lower corporate rates and an exemption for profits they shift offshore. McIntyre, however, says “Our study provides proof that too many corporations are already being coddled by our tax system.” Findings in the report include:
The average effective tax rate for all 280 companies in the study over the three year period was 18.5 percent; for the period 2009-2010 it was 17.3 percent, less than half the statutory rate of 35 percent.
78 of the companies enjoyed at least one year in which their federal income tax was zero or less.
30 companies enjoyed a negative income tax rate over the entire three year period on their combined pre-tax profits of $160 billion.
Total tax subsidies given to all 280 profitable corporations amounted to $222.7 billion from 2008-2010.
Wells Fargo tops the list of 280 U.S. corporations receiving the most in tax subsidies, getting nearly $18 billion in tax breaks from the U.S. treasury in the last three years.
Pepco Holdings had the lowest effective tax rate of all the companies in the study, at negative 57.6 percent over the three year period.” Citizens for Tax Justice
If I understand those numbers correctly, large corporations are paying about half of the rate that they claim is too high. Another example of how little these corporations are paying was recently discussed in a Crooks and Liars article on General Electric. “General Electric is a prime example of this trend. Despite being highly profitable and subject to a theoretical tax rate of 35 percent, GE paid only a 11.3 percent tax rate in 2011. And that number was the most they paid in more than a decade. In 2010, they actually paid no taxes and got a net tax benefit of $3 billion. For the 10 year period prior to that, their effective average tax rate was 2.3 percent.” Cooks and Liars
Recently, President Obama proposed a reduction in the corporate tax rate to 28 percent for many corporations while claiming to reduce or eliminate many tax loopholes. “President Obama will ask Congress to scrub the corporate tax code of dozens of loopholes and subsidies to reduce the top rate to 28 percent, down from 35 percent, while giving preferences to manufacturers that would set their maximum effective rate at 25 percent, a senior administration official said on Tuesday. Mr. Obama also would establish a minimum tax on multinational corporations’ foreign earnings, the official said, to discourage “accounting games to shift profits abroad” or actual relocation of production overseas.” New York Times
In light of the low actual rates paid already by these corporations, I don’t understand why the rate even needs to be reduced. When General Electric pays an average of only 2.3% over ten years, what will they pay under Obama’s proposal? I think the proposal to set a minimum tax is good in theory, but the devil is in the details. I will believe it when I see it.
When politicians are screaming that corporations are people and should be allowed to deny their employees any insurance coverage for services that they have religious objections to, shouldn’t we make sure that they pay tax rates that Real people pay? How many workers were laid off or terminated while these profitable companies paid very little, if any, taxes? What are your thoughts?
(Disclosure: The author owns a small amount of shares in General Electric stock.)
Recognize that growl. Go bite his ass. Oh, that’s all he is???? Yep.
Jack,
If you’ve got a problem understanding the legality of taxes, see the Constitution.
If you’ve got a problem understanding the concept of fairness, well, that would be your failing as a person and your parents in raising you.
0% corporate taxes is a subsidy no matter how you slice it. The fantasy that it would result in anything other than higher profits is just that: a fantasy. Even with the current tax rates, companies across the board have been posting record profits in many sectors and yet unemployment and lack of reinvestment runs rampant. Capital surpluses and profit taking rise yet the economy as a whole is stagnant and floundering. Those are simply the economic facts. Why is that, Jack? Can you explain that little speed bump about your dream of corporate largess and boosting the economy through no taxation of corporate profits? I mean, can you explain it cogent terms and not simply regurgitating more corporatist propaganda?
I tweeted the article cited to santorum who wants t go to 0 corporate tax rate. (As though he would really care or read anything that might show him he needs to do some thinking)
I think Mike S bears repeating:
Paraphrased—-Tax laws are for corporations and the rich, not for the rest (99percent) of us.
Get it. Obviously it’s some kind of shell game variant. Now you see the profits and now you don’t.
And even the best minds end up where the most money is, of course.
So chande does the IRS have when the laws were written to favor the corps to begin with. Only the ones with poor attorneys and accountants get burned. And the price of that is not even coffee money to them.
It’ll fall behind the cushions in the sofa.
Only we get screwed.
I’ll ask those who know, ie national economists (go to sleep Chicago school).
How can a nation with our GDP per person be so poor that 48 percent live at or under the poverty line? How can developing countries such as South Korea, Singapore, Sri Lanka, and tired ol socialist countries like Finland have better school results than we do. And don’t come with any homogenous population hogwash. It won’t wash. No, they are simply motivated by the realization that internal development comes before corporate profits.
Any opposed?
jack,
“Congress needs to do what makes sense – drop corporate rates to 0% and then tax income and dividends. You’ll get more money, more jobs, higher wages, more competitiveness, etc. ”
OK, given that, why should multi-national corporations not leave all overseas profits, including those generated by payments for immaterial rights use to subsidiary overseas companies, where they are since over ten (?) years back??
No incentive to repatriate the profits. Just wait for Congress to let’em take them home untaxed, or use them to drain America. (populist phrase).
You also did not mention subsidies, tax incentives, etc and lawyering the tax process.
Here abusing the tax laws is not exactly a cottage industry.
And obviously it’s for providing loopholes for corps, not for John Doe.
So your suggestion would put about, shall we guess, five 5 million lawyers, accountants, lobbyists, etc out of work.
Bet you’re not one of them. Or are you tired of the trade and have new ideas to exploit on your “new” tax world you dream of.
To all,
Insights come easily, especially when they support your opinions.
Here’s a new one for me:
Someone mentioned in the matter of corporate responsibility for torts initiated against activities occuring outside the US.
They mentioned the case of whether privateers sponsors had limited or full responsibility.
Our corporations remind me of privateers.
They are proven to ignore the limits of their charter, ignore the rights of others to own goods, and will take lives in order to hide their misdeeds, etc, etc. And will use the power of their sponsors to protect their operations.
Gene H.
LOL. That was actually really funny. I certainly didn’t mean “crate” but create. But the whit does not go unnoticed, nor unappreciated!
On the substance, I don’t understand the crux of your comment, that being that “corporations should have to pay their taxes.” Tax is an obligation as determined by the government. If they have no obligation, they have no tax. And if they have tax and don’t pay it, they get fined. So, I guess I’m having a hard time stomaching your argument when it begs the question in the first instance.
Secondly, the issue of taxes isn’t taxes for taxes sake. It’s all about generating revenue. And, that is why I think corporate taxes should be 0. Remember, that corporations can only do certain things with $$$. One is pay salaries, in more jobs or higher salaries. Considering the top income bracket is above the corporate tax rate, why don’t we want corporations paying top execs more money (for tax purposes)? The treasury would get more money anyway! The other is re-invest (which leads to more jobs and more money) and the last is dividends, which is income to investors – which is also taxed at income rates. Corporate taxation makes NO fiscal sense, and only makes the US less competitive. Again, I’m not suggesting that we not tax profits, but tax them at those people that actually make them. Unless, of course, you are advocating that corporations are, after all, said “people.”
Lastly, what in the world is “excess profits?” That is utter nonsense. Its populist rheotric with no real meaning. But I DO agree in ending subsidies in most instances (except in national security situations to maintaining a minimum food supply, etc.) I don’t think we even need to get there right at once. I think all subsidies should have a trigger placed on them now that decreases the subsidy anytime to where profits exceed GDP over a rolling 5-year average. But that’s just me.
Lottakatz,
Your argument is self-imploding. Every time Congress tries to close corporations using tax shelters, the corporations out-think them. Check out the 60 minutes piece on tax shelters. Its fascinating. For example, they tried to restructure taxes based on where management is located, so the corporations moved their management to Ireland and Switzerland. And, corporations just sit on loads of money off shore so the case doesn’t get taxed, and which the US can’t touch. This is the type of regulation that is mind-numbing. Rather than pushing populist nonsense (i.e. TAX CORPORATIONS!), Congress needs to do what makes sense – drop corporate rates to 0% and then tax income and dividends. You’ll get more money, more jobs, higher wages, more competitiveness, etc. I don’t understand why people just don’t get it. Do it this way, and then you also enjoy the other side-effects, i.e. virtually marginalizing lobbying, increasing R&D, etc.
nick
a fair summary to me. some may find it oversimplying. but suits me.
its quite amusing reading this post. my $0.02 is that people have already made up their minds. You either think corporations are crooked, or you dont. If you dont pay your “rate” you are unethical and shirking your responsibility, if you do, you are a good corporate citizen.
The only thing I got out of this study is that the tax code is a gigantic mess, subject to political pressures and highly non-transparent.
In our current political environment with seething fanatics ON BOTH sides, none of this will change. Just read through these comments again and you should realize that the world is now bi-polar and no matter the side you are on the other guy is either with us or is reaming us!
Bron,
of course you are in favor of a flat tax because the high income individuals will continue to make out like bandits. The argument that the divident income will be taxed twice does not pass muster.
I have a better idea that is proven to work here in the United States. Tax people who are making over $1,000,000 at a 50% rate and include all income for the payroll taxes, instead of capping it at $106,000. That should include dividend income as well. Why should someone making 200,000 not have all of his/her income subject to Social Security taxes? We don’t need more draconian cuts that actually do more harm. We need corporations keeping jobs here and keeping their money here and paying their fair share of taxes.
Mike S.
Now having awoken from an unusual nap, I find that Woosty’s post was 2 hours ago, and the site is not active for the moment.
I found your post moving (not slicking your ear or anything worse), because of the humanity expressed in helping friends. As you know, that is one of the strange practices done by humans, of which I know little.
But that wasn’t all that prompted me, it was also a signal to recall my first encounter with withholding tax, and the annual W-2 form; an IBM card cleverly fashioned so that there was space to show what they had withheld, and a space for you to sign it and say “I surrender”.
Now don’t know how much difference between there was between 1963 and 1970s, but it must be so that your friends were making lots more than I, or the tax system had grown more complicated—-although it may have been possible to file a return even in ’63 but not worthwhile, as some person had explained to me.
Comparing you and I, I see that you had a purpose with your life which seemed more consciously directed than mine. As for me , just then was trying to keep my nose over the water and sailing on my adventure without either compass, map, or telescope.
I had been shipwrecked and was hopefully afloat again, but as always unsure of my bearings, where the shoals iay, and the meaning of the mainlands distant contours.
I like cryptic references, but often (too much, I know) prefer this long form.
Ahhh, was that the name of the alternate to the W-2 form?
A mystery for Dredd, which part of my brain/mind made that connection.
No acknowledgement needed. I write for myself, although sometimes motivated by wishing to contribute something to the common soup bowl.
Have today renounced for the umpteenth time writing for getting attention or a clap on the head.
Nice that you’re around. Assume many think so too.
RAFFLAW:
“Do you think it is a coincidence that income from dividends is taxed lower than the normal individual tax rate?”
I dont know, there has been debate about how to tax passive income for a long time. I dont think it right to tax dividends at the higher rate because taxes have already been paid. If I make $100 bucks and buy $10 worth of stock which pays a $1 dividend, I already paid the taxes on the $10 I bought stock with. Why shouldnt it be taxed at a lower rate? Or why should it be taxed at all?
The $10 I used to purchase that stock is doing an awful lot of work. Shouldnt I get a benefit for helping the economy grow?
And think about the retired people who may rely on dividend income to fund their retirement, is it fair to them to be taxed at the same rate as if they had a job? Especially after they have paid taxes for 30-40 years.
Personally, I think the best idea is to have a flat tax on all income over $40,000. No matter what you make, you pay between 15% & 20%, no deductions, no subsidies, no nothing. You make make $50,000 you stroke a check to Uncle Sam for $2,000 [20% of $10,000].
The government would get rid of the IRS and the money saved on tax preparation would be an instant real stimulus to the economy.
I am talking about funding all government expenditures on the 20%. You make some real budget cuts and I think it would be possible.
Effective oversight and enforcement of the laws that protect people and the environment are not a bad thing, those things are beneficial to everyone.
In other words; If Corporations played nice, they’d have more friends….
http://www.reuters.com/article/2012/03/05/us-tepco-lawsuit-idUSTRE8240RY20120305?feedType=RSS&feedName=topNews&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+reuters%2FtopNews+%28News+%2F+US+%2F+Top+News%29&utm_content=Google+Feedfetcher
I want government out of the economy.
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your lips say no but your pocketbook says YES YES YES!!!
😉
also, the Government will always be part of the economy…as long as there is taxation …
Bron,
You are right that in the last couple of decades, corporations have not paid their fair share of taxes. The law states that corporations have to pay taxes, but that same law gives corps too many loopholes to screw the country. Do you think it is a coincidence that income from dividends is taxed lower than the normal individual tax rate? The gap between the very rich and the rest of us has grown significantly since Reagan when the corporate taxes were reduced and the highest tax rates for individuals was also slashed.
Thanks Mike!
Great article Raff. during my checkered Law School career I took the course in Taxation Law and did well with it. I had a whole bunch of pertinent books from the course. A few years later in the early 70’s, I decided to do give close friends a present by doing their taxes for them for free. When I sat down to do the first return I made sure to have all my books by my side. When I finished the eleventh return the books were still there. I realized that at no time did I need to open any of them. A light bulb lit my dim brain as I realized that all of those books were for the benefit of wealthy people and corporation’s taxes, not needed for the average person’s return.
Woosty:
I am a free market guy, but I think that corporations are out of control with their lobbying and their willingness to use the government to help them compete by making rules and regulations which favor their particular company or their industry.
I dont think a CEO should make 100 million per year and pay the secretary like shit and then on top of that to make people pay part of their health care.
But one of the reasons CEO’s make high incomes is because of the stock options. I dont remember exactly but Clinton went after high CEO salary’s and capped them. So business did what business does and went around the caps with stock options. So where you used to have a CEO making 10 million he now has options worth 100 million.
Check it out to make sure I am right but I am pretty sure I am.
I want government out of the economy. With that being said, I do understand that we need to set pollution limits and air quality limits and some other limits concerning food production but we dont need to regulate the color of margarine [honest to god regulation].
I think you will find, especially now with the Internet, that corporations would be held to a higher standard and would pay a heavy price for bad actions. Look at how quickly Rush cried uncle; 3 days. His career has been hurt and he looks like a doofus to boot [I know the left always thinks that, but now some on the right do too].
Get rid of stock options and allow CEO salaries to be set by market forces. Their salaries, if set by the market, would be held in check. Every job has a salary limit set by market forces. And if you didnt have stock options and salary only, maybe they would work for the best interest of the company, the share holders and the employees. Which would be best for everyone since many of us are employees and stock holders.
I think there has been an unholy alliance between big government and big corporations and I would like to see it end. But I dont want to see socialism because that is just more of the same old, same old.
Thy don’t allude….
(They….;)
…… The tax rate doesnt matter because a company is always going to be able to show a low profit or a loss. If they pay their people more then the people pick up the tab. Even if the amount of money paid by corporations is less than it was in 1955, how much more are people making? …………….
……… If you work for a corporation and the corporation is paying your salary, the corporation is providing the money for the taxes………..
If they have to pay more in taxes they just pay less salary or less dividends. Corporations do not pay taxes, individuals pay taxes. The cost of a product includes taxes paid by the corporation.
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No, you make it sound like Corporations exist to be gatekeepers of the Almighty dough…..lots of separation from supply and demand these days…..Look closely at salaries and you will see that Corporate profits on paper do not always add up. Ceo greed, the redistribution of wealth….has all been going on for a very very very very very ;long time. Thy don’t allude to these practices as piracy for nothing!
Also, doesn’t there have to be a very real and tangible good or service that a corporation provides….?
If a bank takes a deposit then uses it for thier own gain….why is that considered a good?
As something that needs protection by the Government? It is the depositor that is in need of protection.
“Corporations do not pay taxes, individuals pay taxes.”
yes, that IS the whole point, isn’t it?
lottakatz:
so if a company made $25,000 in profit they would pay $13,000 in taxes?
So why would you show a profit in 1955?
That is the thing people miss. The tax rate doesnt matter because a company is always going to be able to show a low profit or a loss. If they pay their people more then the people pick up the tab. Even if the amount of money paid by corporations is less than it was in 1955, how much more are people making? Also dont forget that a good number of small businesses are incorporated as S class which is direct pass through to the owners and they pay at whatever their rate is. If you work for a corporation and the corporation is paying your salary, the corporation is providing the money for the taxes.
If they have to pay more in taxes they just pay less salary or less dividends. Corporations do not pay taxes, individuals pay taxes. The cost of a product includes taxes paid by the corporation.