Respectfully submitted by Lawrence E. Rafferty (rafflaw) Weekend Contributor
Now that we have celebrated Thanksgiving, I was struck by the news that Congress is considering legislation that would grant large tax breaks to corporate citizens and actually remove tax breaks for the poor and the middle class.
‘ “This Congress seems willing to give huge tax cuts to big businesses—who are already doing better than ever—but somehow can’t prevent tax increases on 50 million working Americans that will occur when expansions of the Earned Income Tax Credit and Child Tax Credit expire,” Harry Stein, the Associate Director for Fiscal Policy at American Progress Action Fund, told ThinkProgress. “This is a great deal for CEOs and a terrible deal for struggling families.”’ Nation of Change
One of the most amazing aspects of the proposed legislation is that it was reached as a compromise between Republicans and Democrats in the Senate. In light of the hug tax breaks for corporations, one is left wondering, just what did the poor and the middle class get in this “compromise”? The answer to that question is, not much.
“Under the terms of the $444 billion agreement, lawmakers would phase out all tax breaks for clean energy and wind energy but would maintain fossil fuel subsidies. Expanded eligibility for the Earned Income Tax Credit and the Child Tax Credit would also end in 2017, even though the Center for Budget and Policy Priorities estimates that allowing the provisions to expire would push “16 million people in low-income working families, including 8 million children into — or deeper into — poverty.” The proposal would help students pay for college by making permanent the American Permanent Opportunity Tax Credit, a Democratic priority.
Meanwhile, two-thirds of the package would make permanent tax provisions that are intended to help businesses, including a research and development credit, small business expensing, and a reduction in the S-Corp recognition period for built-in gains tax.
The costs of the package will not be offset.” Nation of Change
As I understand the proposed “compromise”, large corporations that in many cases do not pay any taxes, will get 2/3rds of the tax breaks outlined in the legislation, including fossil fuel corporations, at the expense of clean energy. If you are a large corporation, especially those that deal in fossil fuels, your Christmas may have come early this year. But don’t worry, it seems that in many ways, corporate citizens enjoy the ability to avoid Federal taxes entirely and in some cases, actually get money back from the government! All while not paying any Federal taxes.
If you need some examples of corporations hitting the tax jackpot, you need to look no further than here. I guess it really pays off to be a corporation when it comes to tax time.
“It seems incomprehensible that Boeing, Ford, Chevron, Citigroup, Verizon, JP Morgan, and General Motors, with a combined income last year of $74 billion, would pay no taxes, and in fact receive a combined refund of nearly $2 billion. The data comes from a new study called Fleecing Uncle Sam, which goes on to note that the unpaid taxes of almost $26 billion could pay for Pre-K education for every 4-year old in America.” NOC
The good news is not everyone in Washington is going along with the proposed compromise. The Treasury Secretary, Jack Lew has blasted the proposal.
“On Monday, Treasury Secretary Jack Lew also blasted the emerging agreement as “fiscally irresponsible” and doing “very little for working families.” He said, “Any deal on tax extenders must ensure that the economic benefits are broadly shared. We are committed to working with Congress to address the issue in a manner that is fiscally responsible and extends critical tax benefits for working families.” Nation of Change
President Obama also threatened a veto if the legislation, as currently written is approved by lawmakers. Sen. Harry Reid has also backtracked his original approval of the compromise and “denied it “signed off” on any deal without commenting on the specifics of the story.” Nation of Change
Was Congress expecting that most Americans would be in favor of losing tax benefits to profitable corporations? Why would any legislator want to give tax legislation “gifts” to corporations which at the same time would harm green energy firms and millions of individuals?
Don’t the Waltons and the Koch Brothers already make enough money? And in the case of the Koch Brothers, much of their earnings are at the expense of our environment, so why give them more tax breaks?
The best answer that I can come up with to those questions is to follow the money. The large corporations and some of the wealthiest individuals and families in America believe in the Gordon Gecko philosophy of “greed is good”.
In my opinion, the House of Representatives and the Senate are wholly owned subsidiaries of these very same corporations and the House and Senate members must deliver the pork to their bosses. What do you think?
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Sorry, Carville and Begala have written a book. Is it worth my time? Somewhere someone mentioned Kos as conservative turned liberal,
but how do you compare such drivel as liberal? I get the Daily Kos outrageousness from “The Five” to save my temper. Would someone in that wonderful picture of Reagan laughing, along with Bush, and faces I’ll put names to in the middle of the night when I remember, what was that funny? We need to know in these times.
Sandi – what you need to know about that photograph is that somebody knows how to tell a joke. Timing is everything so someone actually needs to date and context the photo.
I must defend corporations. I spent 30 years at one of the best. The benefits, opportunity, and simple humanity were more than I expected. There are good ones and bad ones, as life is in general. By lumping GE as a comparison for other quality corporations, you add fuel to the fire if “if it weren’t for corporations” life would be good. In today’s government, more private sector involvement would save us mucho dinero.
Pogo, I am not a 24-hour Internet person.mso I have no idea what he was or is.
I should add that my distaste for the over population of SES types is that they are not accountable to voters or anyone … they frequently went to Washington in their 20’s and never left, other than for some temporary stints with contractors at times. No one elected them, period (one exception I know of would be Dick Cheney … left over from the Nixon White House)…and the bulk of them do not move on with administration changes. They are in fact, institutions unto themselves.
raflaw…I suspect you have a good point. In addition I’d like a Congress that would force a “reduction in force” (RIF) of between 50 and 75% of the Senior Executives, all appointees, that actually are the ones who set policy, define procedures, and meet with lobbyists the most frequently. They are NOT civil servant on the General Schedule. Virtually every time an agency or department “re-organizes” the ranks of the SES grows geometrically, which actual civil servants are cut, then a savings is claimed. Best example of this phenomena is the Department of Homeland Security and its huge expansion of the role of FEMA…originally a fiduciary outfit who handled the money in emergencies…e.g., bookkeepers. Now they are a mega agency with separate contacting devisions i in spite of the US Government already having three long standing contracting organizations; DLA, GSA, and USACE. Most of the SES personnel I’ve worked with had little or no experience in the fields they oversee…about 1 in 10 would be my estimate. Best example of that phenomena would be Lois Lerner.
I wish I knew of a way to force this RIF…I’ve been through 3 RIF’s, one in uniform, 1972, and later as a military “Fed” in 1992 and 2005. Usually the funciton ranks are cut, with the administrative grades retained. Did anybody notice any real savings or actually reduction in supervisory staffing…notice that in the federal government they struggle mightily to achieve a 1 to 10 ratio, achieved usually by removing the term “supervisory” from Civil Service job descriptions and renaming them “Leads.” Meantime the “Leads” still do all the actual functional supervision of providing service by government. It is a charade of the first order.
Aridog,
While many commenters have tried to make this a partisan issue, the real problem is money in politics. Until we get money out of politics, we have no chance of getting politicians to actually answer to the voters who don’t have a million dollars to send to their campaigns, directly or indirectly.
rafflaw you said…
As I stated in the article, the House and Senate are wholly owned subsidiaries of the corporations and wealthy individuals on both sides of the aisle.
And you are one of the few here who will acknowledge the fact I’ve highlighted by bold text. I’m from Michigan so I am very used to and familiar with the phenomena.
Darren Smith said …
As long as members of Congress and the presidency are on the take, things are not going to change.
That is another correct and even handed answer. Sad to say…. 🙁
nicklamps,
Here is an USA Today article that lists companies paying little or no federal income tax after the credits and deductions and subsidies. http://www.usatoday.com/story/money/business/2013/10/23/big-companies-pay-no-taxes/2480281/
And here is an ABC News article about GE. http://abcnews.go.com/Politics/general-electric-paid-federal-taxes-2010/story?id=13224558
Larry,
The problem truly lies with Congress not as much with the corporations that use the tax system Congress creates.
If GE and the others are not breaking any laws then one point of view is that they are being compliant with what the tax code mandates, or permits.
As long as members of Congress and the presidency are on the take, things are not going to change.
rafflaw
your link in making MY point.
Harvesting losses – these are actual losses (not profits) that companies get to carry forward. Nothing sinister here at all
Accounting rules – these are just rules to account for expenses such as depreciation. These are real expenses. The question is when those expenses get realized. Pretty straightforward stuff. Nothing sinister here.
Offshore Transfer payments – I read that section and shook my head. Notice how words matter. “By doing this, the overseas unit makes a large profit, which then escapes U.S. taxes, as long as it stays in the foreign country” . Of course they neglect to mention that the US corp has to book an unusually high expense for that purchase, which in the end washes out that “huge” profit. Its moving money from one pocket to the other. Maybe there is a huge tax boon there but the article could have shown how these are a tax boon. What I read was “The companies’ U.S. operations then purchase these parts from the foreign units at well above cost.” So US companies are taking on extra costs, to avoid paying tax costs??
There are lots of reasons why a company pays no taxes. I have not seen a single piece of evidence with any sources breaking down a specific case where there was some sinister or unfair elements involved. Loss carryovers and depreciation expenses are fair and standard. If a company makes $5B and spends $5B on machinery then it needs rules to handle that $5B in expenses. If a company losses $5B in a single year then it needs rules to handle that loss.
It would be nice if someone, somewhere could take GE’s income statement, tear it apart and show the world how and why what they pay (or not pay) in income taxes is some kind of sinister act or unfair practice. So far everything I have read including this article is just internet memes and confirmation bias.
rafflaw
I am no fan of large corporations but I can’t find the numbers illustrated in the links provided. Maybe I am bad at google. I look up GE and see that they have an income tax charge. No fan of GE but if I am to cast stone I want proof of the wrong doing. Your article does not provide that evidence. What are credits? Is that like depreciation? What are the subsidies? Is that business the US government shells out to GE?
Yes because CNN and Forbes are vey biased and leftist I guess.
nicklamps,
For clarification purposes, the issue of large corporations paying little or no federal income taxes( after credits and subsidies) is not a new one. If you look at previous articles on this blog, you will find similar numbers. leejcaroll has kindly provided you with more evidence of this problem. The mere fact that companies can do this legally, is the issue at hand. It is not a political issue as some have tried to label it. As I stated in the article, the House and Senate are wholly owned subsidiaries of the corporations and wealthy individuals on both sides of the aisle.
Here is an article that was linked in an earlier article that I wrote that will provide you with some more background and more links. http://thinkprogress.org/politics/2011/02/26/146562/main-street-tax-cheats
this is from Bernie Sanders so I know Paul will say illegitimate but figures are figures:
http://www.sanders.senate.gov/top-10-corporate-tax-avoiders
From 2008 to 2012, not only did Corning pay no federal income taxes, it received a $10 million tax refund from the IRS, even though it earned more than $3.4 billion in U.S. profits during those years.
Corning has stashed $11.9 billion in offshore tax havens to avoid paying U.S. income taxes. Corning would owe an estimated $4.165 billion in federal income taxes if its use of offshore tax avoidance were eliminated
In 2009, not only did Merck pay no federal income taxes, it received a $55 million tax refund from the IRS, even though it earned more than $5.7 billion in U.S. profits.
In 2012, Merck stashed $53.4 billion in offshore tax haven countries to avoid paying income taxes. If this practice was outlawed, it would have paid $18.69 billion in federal income taxes.
From 2009 to 2010, not only did Honeywell pay no federal income taxes, it received a $510 million tax refund from the IRS even though it made a combined profit in the U.S. of almost $3 billion.
In 2012, Honeywell stashed $11.6 billion in offshore tax havens to avoid paying U.S. income taxes. Honeywell would owe an estimated $4.06 billion in federal income taxes if its use of offshore tax avoidance were eliminated
Pfizer, one of the largest prescription drug companies in America, not only paid no federal income taxes from 2010 to 2012, it received $2.2 billion in tax refunds from the IRS at the same time it made $43 billion in profits worldwide.
In 2012, Pfizer stashed $73 billion in profits offshore and has used aggressive offshore tax strategies to avoid paying U.S. income taxes
Just a few of the examples
This is from 2011: Some companies paid zero. And 30 actually owed less than nothing in income taxes over the three years.
http://money.cnn.com/2011/11/03/news/economy/corporate_taxes/
and this:
The most egregious example is General Electric . Last year the conglomerate generated $10.3 billion in pretax income, but ended up owing nothing to Uncle Sam. In fact, it recorded a tax benefit of $1.1 billion. http://www.forbes.com/2010/04/01/ge-exxon-walmart-business-washington-corporate-taxes.html
Avoiding taxes is nothing new for General Electric. In 2008 its effective tax rate was 5.3%; in 2007 it was 15%. The marginal U.S. corporate rate is 35%.
As a result, figures tax economist Martin Sullivan, companies are keeping some $28 billion a year out of the clutches of the U.S. Treasury by engaging in so-called transfer pricing arrangements, where, say, Microsoft’s overseas subsidiaries license software to its U.S. parent company in return for handsome royalties (that get taxed at those lower overseas rates).
Leejcaroll
you have provided no links with actual evidence of what you or this article is suggesting.
Pick a company and pick a year and let’s see the evidence of these huge tax refunds. I just looked at GE and since 2010 that have had a positive tax payment. in 2010 they paid $5B in taxes even with the massive carryover losses from GE Capital (from the financial crisis). Show us where this negative tax rate comes from. It is becoming obvious to me that all of the links are all pointing to the same sources and those sources do not show much evidence for what they claim. If you can show us the egregious behavior described in this blog post I will tip my cap. But this looks like an internet meme and completely disingenuous.
http://finance.yahoo.com/q/is?s=GE+Income+Statement&annual
In addition the article talks about tax refunds. Again without looking at the in depth financials, I am skeptical that those are actually “refunds” as opposed to tax credits or tax deductions.
A refund is cash given back to you that you paid in. Credits and deductions are and entirely different item. A credit for R&D expenses is not a refund to a corporation.
Until I am clear that the authors of the article actually know the difference or that they aren’t being purposeful in misrepresenting their terms, I am skeptical of their conclusions or their attempts to persuade.
This are some of the techniques that I used when analyzing stocks that I might be considering for my client’s portfolios. I also didn’t take the pro foma analysis that were sent out by my firm at face value either.
Everyone has a bias. I want to know what it is.
@ nicklamps
Thank you for the link. I will read the whole thing. But this part really stands out to me.
Of America’s 30 largest corporations, seven (23
percent) paid their CEOs more
than they paid in federal income taxes last year
They paid taxes. Not zero taxes. That they received incentives, tax refunds, and utilized other tax strategies…all of which are legal is not surprising. A business would be foolish not to maximize expenses that offset income in order to pay less taxes and increase their actual cash flow. Individuals do this. Small businesses do this. It is perfectly legal and is a benefit to the shareholders who are partial owners of the corporations.
The second and BIGGEST issue that I have when people quote executive compensation, is that they are usually including executive stock options in that compensation. Generally, the reporters have zero comprehension of what an executive stock option (as opposed to a trading option) actually is and how they really work, or how they are valued, or what the tax treatment of stock options is. The general public is easy to fool when you are inaccurate or just out and out lie by representing stock option in current income. Without going into a big dissertation on options….people can look this up on the internet and get educated…….the figures used that include options are disingenuous at best. http://www.investopedia.com/articles/stocks/04/111704.asp
Executive options are not cash in hand. Are not money that the executive can even use. They may even lose in value when the option is exercisable. Until people understand this they are just repeating stupid talking points without any knowledge. A parrot can do this. Shouldn’t people at least try to be smarter than a parrot.
Third. What the corporations decide to pay their executives is not the business of anyone but the owners of the company. If they pay more in expenses than they pay in taxes…..this is normal. If they want to use a larger portion of their expenses on compensation, instead of land purchases or infrastructure investment….that is their business. As a shareholder, I might want to protest this. However, if you aren’t a shareholder, it isn’t any of YOUR business than it is how many exemptions your neighbor declares on his tax form.
Dust Bunny
Thanks. I agree with you. I am quite surprised how bad this particular blog article is in its accusations (without any evidence) and then to link it to compensation figures that as you mentioned are not cash but risk based leads me to believe that the author of this article is not interested in veracity but in inflaming his readers.
In this day and age of easy news, it’s amazing how little people actually think. Our confirmation bias is redlining. We are becoming regurgitating internet memes.
Dust Bunny –
I apologize, the negative number was from this link in the article itself (Fleecing Uncle Sam) : http://www.ips-dc.org/wp-content/uploads/2014/11/IPS_Fleecing_Uncle_Sam_Report_Nov2014.pdf
So this entire article keeps saying that these corporations didn’t pay any taxes, yet I cant find any evidence of that. I looked at the financials from their 10K and it matched Yahoo’s summary. I checked out Citigroup as well and they also paid billions in taxes last year. Can anyone please provide a link to where there is evidence of tax paying? There is certainly no evidence in this blog article nor in the links provided.
@ nicklamps
I only see 7.9B in taxes for the year ending 12-31-13, on the link that you have in your comment. 9.6B in interest expense. I don’t see a negative number on the income and expense statement that you linked to. I do see 16.5B in income applicable to to common shares…..aka dividends paid to stock holders, mutual funds and pension plans.
Yahoo Finance is just a bare bones recap of financial statements. Basically and elementary summary. not a full financial statement.
However, what is more interesting on this recap is the expenses Other category. (I really hate that ‘other’ category on financial statements and need to see deeper to understand. Other is where you can hide all sorts of funny business.) What is interesting is the HUGE drop in “other” expenses from the previous years. 8.4 B in 2011 to 4.3 B in 2012 to only 862 Million in 2013. What happened. I also noticed a negative expense in that category in the quarterly statement in the last quarter of 2013, meaning they had a gain in that area as a negative expense is actually a positive….cash flow?. Did they sell something significant? What was the gain to offset such previous “other” expenses?. Very interesting.
I would need to look at the full SEC filings in order to get a better picture.
Karen,
It’s leased.
Um…no.
http://www.heritage.org/federalbudget/where-did-your-tax-dollar-go