Corporate Tax Rate and Reality

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.)


133 thoughts on “Corporate Tax Rate and Reality”

  1. ANALYSIS: In Almost Every Primary, Romney Wins Big Among The Rich, Loses The Working-Class Vote

    By Alex Seitz-Wald on Mar 7, 2012 at 2:20 pm

    In February, a CNN poll found that regardless of age, race, sex, or party affiliation, all Americans agreed that Mitt Romney “favors the rich” over the middle class or poor, ThinkProgress noted. And it looks like the rich are returning the favor.

    The Washington Post reported this morning that in both Michigan and Ohio, “voters making more than $100,000 per year turn[ed] out in much higher numbers this year than they did in 2008″:

    In 2008, 22 percent of GOP primary voters in Michigan made at least $100,000, and that group made up 21 percent of the electorate in Ohio, according to exit polls. This year, 33 percent of voters in Michigan made that much money, while 30 percent of Ohio voters did. In both cases, the number of wealthy voters grew by about 50 percent — a pretty stunning increase in that demographic over just a four-year span.

    In both states, Romney won among those making more than $100,000 by 14 points, even though he lost among all other income demographics.

    This trend occurs in virtually every state that has voted thus far. A ThinkProgress analysis of exit/entrance polls from the 14 states that have conducted them shows that Romney consistently does best among those earning more than $100,000 or $200,000 a year, while more often than not losing among middle- and working-class voters.

    The only states where this wasn’t true were Massachusetts, his home state where he served as governor, and Virginia, where Rick Santorum and Newt Gingrich weren’t even on the ballot.

  2. Jack,

    Your premise is that since corporate profits are distributed to shareholders then taxing the shareholders receipt of the profits actually derives the same revenue. That is incorrect. Corporate profits are not distributed to shareholders on anything like a 1:1 ratio. Corporations hold onto most of their profits either to increase cash on hand, or to reinvest in other means of furthering the profits they’ve made. These means are usually not expansive in the terms of growing the business, but in terms of reinvestment into financial instruments that reap further profits. There is a whole sub-genre of the financial industry dealing with that alone.

    “The corporation can’t do anything with profit. Rather, those profits are distributed to investors who are then (generally) taxed at higher income rates than even at the corporate tax rate.”

    What percentage of corporate profits are redistributed to investors?
    A more complete answer to what you suggest can be found here:

  3. rafflaw.

    One illustration on why income disparity falls terribly short of any meaningful analysis:

    Imagine I get paid $200,000 as a lawyer and another guy gets $35,000 as a plumber after 40 years of work. Terrible, isn’t it?! If you actually run the numbers (which I did) and include tuition and opportunity costs of me going to law school, and also include the social benefits to the poor guy over his life, my Net Present Value is LESS than 20% greater than the plumbers!!! That’s right: $200,000 is only 20% greater in real money terms than $35,000! That’s it! In fact, the NPVs are $892,248.60 vs. $714,351.51. As such, “wealth discrepancy” is a really, really bad indicator! If we want to focus only on numbers, then wealth discrepancy numbers must be in NPV terms.

  4. rafflaw,

    First, I’m not selling anything but common sense. For anyone who has ever taken training in management consulting, the focus of is to find the real problem, and avoid treating symptoms. I didn’t say that wealth disparity is not important, but that is illusory if we actually want to fix anything. Indeed, it makes no sense to make a comparison of the “Joneses” as economic policy if everyone is starving or, on the other hand, eating themselves to death. Now, it very well be that the two approaches will render the same results now, but they don’t necessarily over time. That’s why getting the analysis right in the first instance is important.

    Second, I don’t know how many people have lost their homes, although I am certain that they are far fewer than those that got kicked out of the bank’s homes. Really – how many of them actually “owned” them? But what’s even more important is to note that those people that no longer live in the bank’s homes are now doing what they were doing before – renting, which is actually better than owning when the housing bubble is flipped (and mortgages are more expensive than renting, which is what is happening). Why this is relevant, however, is beyond me.

    Third, the middle class is not “being screwed on taxes and Wall street bailouts.” That’s balony. The fact that 48% of people don’t pay tax means that a very large chunk of the middle class actually don’t pay tax. Moreover, populist people that cry about the financial bailouts don’t know what they are talking about. First, I don’t like bailouts, but the AIG bailout, Lehman bailout, etc. were necessary. The reason is that middle class pensions/retirements were insured by AIG, etc. If AIG went down, the middle class would have been devastated. And this says nothing about hampering lending, etc. Considering how bad it is now, I can only wonder how bad it would have been. Again, I don’t like that this was the fact, but it was.

    Fourth, as I’ve indicated, the way to get $$ back from off-shore shells is to reduce corporate tax rates to 0% and to tax the owners/investors on the income dividend (that’s the only place profits can go). What’s startling is that people think that the government (Congress) will eventually outthink everyone else! They can’t! So shouldn’t they stop trying? You can get every populist progressive economic result you want under my structure, but with none of the down sides; e.g. cheating. And Congress doesn’t need to maintain anything.


    That well-may be true. As you can tell, my economic policy does not square with the conservative right (because they are wrong). I don’t know that I’m a libertarian, but try to be accept anything that makes sense. And with something does, I change the way I think. That said, please note that when I’m talking about “flaming populist fascist,” I am truly not talking about you. I do, however, question the objectivity and intellectual honesty of some people (Gene) when my proposal can get him better results for what he wants (as economically perverted as it may seem), without the downside, using clear economic theory.

    Elaine M,

    Of course. Until tax rates are 0% and we shift tax collection to getting a piece of the dividends from the owners/investors, corporations will keep lobbying.

  5. Elaine,
    I just saw that article. It amazes me that one of the CEO’s pushing to reduce corporate tax rates was the CEO of Boeing which hasn’t paid taxes for nearly a decade! Thanks for the link!

  6. CEOs Of Tax Dodging Corporations Push Congress To Cut Corporate Tax Rates
    By Pat Garofalo on Mar 7, 2012

    Several corporate CEOs representing the Business Roundtable, a lobbying group, were on Capitol Hill today to unveil a set of measures that they claim will boost the economy. Not surprisingly, some of the high-profile items are a cut in the corporate tax rate and shifting to what’s known as a territorial tax system:

    Fresh out of a meeting with members of the Blue Dog Coalition, dozens of CEOs in town for a series of Business Roundtable policy and lobbying meetings today unveiled proposals to boost the economy.

    The plan, billed as “Taking Action for America,” calls for a balanced federal budget, a reform of federal regulations and a lower corporate tax rate based on a territorial tax system, among others.

  7. Jack,
    I am not buying what you are selling. You are now suggesting that the gap between the wealthy and the middle class Is not important. How many people are now in poverty and how many people have lost their homes since 2007? The gap has increased dramatically and home ownership is plummeting due in part to the middle class being screwed on taxes and the Wall street bailouts, not to mention that corporations are moving billions overseas to avoid taxes and sending jobs there as well. Without reasonable regulations, these problems will get worse.

  8. Woosty=^..^ ,

    That’s really an excellent comment stunningly illustrated. A brilliant and apt cross reference Woosty.

    I love that short, I think of it often when I think of the endless war(s) and the people that start and prosecute them. I now have the opportunity to save the link – until I lose it again 😉 Thanks.

  9. rafflaw,

    Almost ANY regulation creates barriers to entry, which help the established rich from pushing out potential competition. That’s my point. But your question is bad anyway.

    The more poignant cause of the disparity, is technological efficiencies. How – you ask? Think: who has the internet and computerization helped? The blue collar worker, or the owners of companies that can now hire fewer blue collar workers? That said, realize that an increase in efficiency HAS also helped the so-called poor, because the standard of living is generally up in the U.S. for the middle-class. Not to say things aren’t more expensive, but you get a lot more bang for your buck. Compare the real cost of a car 25 years ago with a car of today and all the bells and whistles they come with.

    Point being, wealth discrepancy doesn’t really mean anything except for pom-poming cheerleaders. If 90% of the population is 1 billion times better off then me, who cares if I become 1 million times better off myself? Rather, the focus needs to be on the standard of living, the access to basic necessities, and even to luxury goods (cable, cars, netflix, etc.) If that is dropping, then there is something certainly to worry about. From Wiki:

    “The homeownership rate is relatively high compared to other post-industrial nations. In 2005, 69% of Americans resided in their own homes, roughly the same percentage as in the United Kingdom, Belgium, Israel and Canada. Residents of the United States also enjoy a high access to consumer goods. Americans enjoy more cars and radios per capita than any other nation and more televisions and personal computers per capita than any other large nation.”

    The question is, are these rates generally increasing, stagnating, or decreasing?

    Access is the question – no disparity.

  10. Mike,

    This is beautiful. And I mean that. Despite our differences on other topics, I hope you realize the absolute gem you’re touching on. Oddly, yes. In any significant economy, there is no “perfect” perfect market because the assumptions for it to work simply never all “perfectly” hold. (Whether they hold well-enough is another issue altogether). The role of government intrusion into economics should be LIMITED to fixing those assumptions. Thus, it should pass limited, focused regulation. That said (and here’s the gem) there CANNOT be both a perfect market and a free market, because the first (because the perfect market simply can’t exist naturally) requires lubricating regulation and the second prohibits it. And conservatives just don’t understand that although their principal of the perfect market is right, they don’t know how it works nor the government’s role in making it work. And because liberals don’t see it working, they want to throw it all to the wind without any cogent understanding of what they’re talking about. Both are terribly wrong.

    So, that said, in any significant economic environment, the perfect market and free market don’t completely exist. Now, they may when little Jonny sits on the corner selling lemonade (well, at least until recently), but not in any major economy. The goal is to get as close to having the perfect market function as perfectly as possible.

    Now, there are 2 other things I have yet mentioned (and you should really like this). (1) If the cost of the government passing “lubricating” regulation to fix the broken assumptions is more costly than the benefit, then the government should arguably just seek the ends and skip the means. And that makes sense. 2) [READ THIS ONE CAREFULLY] If the government creates windfall, then I think it has a right to ask for more $ back. A good example of this is bankers: There are so many barriers to entry caused by the government in investment banking, that I don’t have a problem that bankers get taxed more. In other words, where the government promotes an unnatural windfall, I’m OK with it more heavily taxing that windfall on the back end because the $$ weren’t naturally earned. But such a progressive taxation policy has NOTHING to do with taxing them just because they are rich!

    The point I hope you catch is that if liberals actually try and understand economics and accept that conservative economic principles are right, they can actually make a more tenable argument for “fairness” using these economic principles and avoid coming off as flaming populist fascists.

    1. Jack,
      Thank you for answering me. You make some interesting points which I will answer tomorrow. I am on my Kindle Fire now which doesn’t lend itself to the task. However, just as you may have been mis-assumed as merely another doctrinaire libertarian, I think you are projecting a whole bunch of mis-assumptions upon me and other regulars here as doctrinaire anythings, save for a fair society, in the sense of all having the opportunity to reach their potential.

  11. Jack,
    I do sleep at times. I am still waiting for the regulation that forced the wealthy to rapidly increase their wealth during the past decade.
    that is a good point about the damaged middle class. The gap between the wealthy and the middle class has exploded in the favor of the wealthy.

  12. Raffila,
    You must be tired. To quote,”name the regulation…”. Poor guy -get some sleep.

    The perfect market is a pipe dream. It is a goal. The reason is that th assumptions needed for it to work simply don’t hold in the real world. Thus, libs hoot and holar and want the government to make everything better. But this is wrong. Rqther, By fixing the broken assumptions, the government can create a mechanism that is more efficient and more nimble at dealing with a multitude of issues. This reduces costs for everyone. In other words, the governments role in efonomics shouldn’t be policy based, bu focused on regulations that help fix he broken assumptions so that the perfect market can work more effectively.

    1. Jack,

      So there has never been a “perfect market”, though you used the term repeatedly. Now how about answering my other question which is when in the history of the world has there ever been a “free market”, since that is another term you use repeatedly to illustrate your economic view? To have a coherent discussion one needs to define terms and both those phrases seem inherent to your arguments.

  13. the argument is not a two sided one….there are others who exist within the dynamic of supply and demand, it is not simply the ‘Corporation’ and the ‘Government’.. …those others are fodder for both at the moment….but the health of the middle class is (something that no-one wants to admit,) a best indicator of the healthiest dynamic between the 2.

  14. Jack,

    “Are you intoxicated or schizophrenic? You are all over the place and fail to make sense in the process.”

    I make perfect sense. That you can’t or won’t understand it and respond by questioning my mental state only shows your desperation and dishonest methodology of argument.

    “Then you say something dumb and say its not what you said, until you explain it and repeat exactly what I said you said?!”

    No. I corrected your hyperbolic and incorrect interpretations of what I said. That you still couldn’t understand it is your intellectual failing.

    “And beyond all that, now you say i am greedy because I am advocating that owners of corporations get taxed more? Thats just bizarre.”

    I think it is clear you are greedy for corporate profits for some reason.

    “I’m interested in productivity and efficiency. That’s it.”

    No you’re not. You’re interested in corporations getting all the benefits of government and paying none of the costs.

    “And what I’ve articulated is better for our economy as a whole – including for your precious 99% – than this boneheaded liberal and ignorant crap. And except for your pussyfoot feelings, you can’t articulate any sensible explanation of how I’m wrong.”

    Except I did explain how you are wrong. Your refusal to acknowledge that notwithstanding. Saying I’m wrong and ignorant isn’t the same as proving it.

    “Seriously, you are cutting your nose to spite your face! Whatever fiscal or social end game you want is better achieved by 0% corporate taxation!”

    That’s your opinion and you’re entitled to be as wrong as you like. I’ll decide my own goals and guess what! They don’t include further subsidizing corporations posting record profits by reducing their taxes to 0%.

  15. Here’s an old quote by Upton Sinclair:

    “It is difficult to get a man to understand something, when his salary depends upon his not understanding it!”

    For the trolls who visit this blog, substitute sanity or ego, for salary.

  16. Jack that is a load. I asked about the Huge increase in the wealth gap since 2000 and you bring up acts in 1933 and 1934? I am still waiting for evidence. Have a nice night.

  17. Rafflaw,

    Umm, no. Many of the broken assumptions occur without the government. But to take your challenge, the security’s act of 1933 and security’s exchange act of 1934. How? BEcause one of he unintnded consequences is that they raise barriers to entry. So, you and i cant just go start a bank or issue stocks. And because the barriers to entry are so high, there isn’t competition that reduces compensation through added supply and increases the quality of services. And if there was one way to term the crash, poor servicing would be an understatement.

    Thanks for playing!

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