Big Business Tax Rate: 18.5 Percent
You often hear people argue that the United States’ corporate tax rate of 35 percent is much higher than other nations, but don’t be fooled. Thanks to loopholes, the actual tax rate is much lower—about 18.5 percent according to a survey of the 280 largest publicly traded companies by the left-leaning Citizens for Tax Justice. About a quarter of the companies paid less than 10 percent in taxes over the past three years, while 30 companies—including Boeing, Wells Fargo, and GE—appeared to pay no taxes whatsoever. Some companies have disputed the study, saying it fails to account for deferred taxes.
Biggest Public Firms Paid Little U.S. Tax, Study Says
By DAVID KOCIENIEWSKI
Published: November 3, 2011
Warren E. Buffett, take note. It is not just a few wealthy individuals paying unusually low taxes to the federal government. Corporate America is not far behind.
A study said Boeing was among American firms that had no federal tax liability for three years.
A comprehensive study released on Thursday found that 280 of the biggest publicly traded American companies faced federal income tax bills equal to 18.5 percent of their profits during the last three years — little more than half the official corporate rate of 35 percent and lower than their competitors in many industrialized countries.
Mr. Buffett, the billionaire investor, has said that the tax code is unfair, allowing him to pay just 17 percent in federal taxes last year, about half the percentage his secretary paid.
The corporate study, prepared by the left-leaning advocacy group Citizens for Tax Justice, examined the regulatory filings of the companies to compute each year’s current federal taxes. Some of the companies disputed the findings, saying that the study understated their tax payments by omitting deferred taxes that they may pay in future years.
Using information from the companies’ own corporate filings, however, the study concluded that a quarter of the 280 corporations owed less than 10 percent of profits in federal income taxes and 30 companies had no federal tax liability for the entire three-year period.
The report is being released as corporations are pushing for a cut in their official tax rate, saying the current system puts American companies at a disadvantage with competitors abroad and encourages them to shift jobs and investments overseas.
The Congressional supercommittee charged with cutting the budget deficit is also considering proposals to revamp the tax system, simplifying the corporate structure and possibly lowering corporate rates.
The study said that the shelters and loopholes in the current tax system rewarded companies that aggressively avoided taxes at the expense of those that did not. A quarter of the companies in the study had a federal tax bill of 35 percent of their profits, while a similar number had an effective rate of less than 10 percent.
“Companies that are paying their fair share ought to demand that the tax-dodging companies pay their fair share too,” said Robert S. McIntyre, the author of study. “So should the public, which is subsidizing them in terms of increased federal debt.”
The report is based on data gleaned from the companies’ regulatory filings, which can be different from their corporate tax returns. Even in a year when a company claims an overall tax benefit, it may pay some cash taxes while accumulating credits that can be redeemed in future years. But because most corporations do not release their tax returns, these corporate regulatory filings offer the best publicly available gauge of what companies pay and what strategies they use to reduce their tax bills.
Among the companies that the study said escaped a liability for all three years were Boeing and Ryder System, whose chief financial officer, Art A. Garcia, said the company had benefited from the additional depreciation intended to stimulate the economy.
Boeing officials said they, too, had paid some federal taxes, but would not say how much. They said they had lowered their rate by taking advantage of tax breaks intended to encourage hiring. Chaz Bickers, a company spokesman, said Boeing hired 9,000 American workers this year
Also on the list was General Electric, which has come under close scrutiny since The New York Times reported earlier this year that the company had recorded $5.1 billion in American profits in 2010, but claimed a federal income tax benefit of $3.2 billion in its regulatory filing.
“The report is inaccurate and distorted,” said Kenneth Juarez, a G.E. spokesman. He said G.E. paid “billions of dollars in taxes in the United States over the last decade,” but would not say what part was federal income taxes.
The company that recorded the biggest reduction in taxes was Wells Fargo Bank, which is a large holding of Mr. Buffett’s company, Berkshire Hathaway. The banking company reported a total of $49 billion in profits in 2008 through 2010, yet received a tax benefit of $651 million. Ancel Martinez, a spokesman for Wells Fargo, said much of the tax savings came from write-offs obtained after its 2008 purchase of Wachovia, which incurred big losses during the financial crisis.
American corporations are paying a smaller share of taxes than in previous decades. They paid a total of $191 billion in federal income taxes in 2010, the Internal Revenue Service said, representing about 1.3 percent of the nation’s gross domestic product. That is down from about 6 percent during the 1950s (although some of the decline is because a smaller percentage of businesses now file as corporations).
Despite the decline in corporate tax rates since then, business advocates say the nation needs to lower its top rate further to encourage hiring and investment. Grover Norquist, head of Americans for Tax Reform, said that the United States system was not competitive because it taxed income earned around the world, instead of just in this country.
“There are still Bolsheviks who recognize that we need to bring the rates down,” he said.
But the Citizens for Tax Justice study found that two-thirds of the American companies with significant profits overseas actually paid more in taxes to foreign governments than they did in the United States. Rather than lowering the corporate rate more, the study said, the federal government should end the subsidies and shelters that favor companies that game the system.
“Closing the loopholes will have real benefits, including a fairer tax system, reduced federal budget deficits and more resources to improve our roads, bridges and school — things that are really important for economic development here in the United States,” the report said.
Here is another version of this same article.
SAN FRANCISCO (MarketWatch) — The official federal corporate income tax rate in the U.S. is 35%, but plenty of the nation’s largest publicly traded companies are paying no taxes — even getting money back from the government in some cases — in years when they reap big profits, according to a new report.
Thirty of the 280 Fortune 500 companies studied paid zero in federal income taxes or enjoyed tax rebates in 2008, 2009 and 2010, according to the study by the left-leaning Citizens for Tax Justice, a Washington-based nonprofit research and advocacy group, and the Institute on Taxation and Economic Policy, a nonprofit, nonpartisan research group.
And 78 of the 280 companies paid nothing in federal income taxes or enjoyed a tax rebate in at least one of those years. Those 78 companies, including General Electric Co. GE +1.23% and Pepco Holdings Inc. POM +0.61% , earned a total of $156 billion in pretax U.S. profits in the years they paid no income tax, yet received so many tax breaks that they reported negative taxes — a total of negative $22 billion, the study said.
A tax rate as low as -58%
The study comes at a time when taxes are a hot topic in the U.S. As Occupy Wall Street protesters decry the income disparity between the 1% and the 99%, a super committee of Washington lawmakers is trying to come up with ways to slash the nation’s massive deficit. And as billionaire investor Warren Buffett calls for higher taxes on the rich, some Republican presidential candidates are calling for a flat tax and a lower corporate tax rate. Read more: Perry flat tax vs. Cain 9-9-9
“Right now there’s an important debate going on about whether everyone pays their fair share,” said Matthew Gardner, executive director of the Institute on Taxation and Economic Policy.
The question U.S. policymakers should answer is “Are the biggest and most profitable companies doing business in the U.S. paying federal taxes on their U.S. income?” he said. “Is the 35% corporate income tax rate working as well as it should? This study demonstrates unequivocally it is not.”
For the three-year period, the average effective tax rate for all 280 companies was about 19%, but rates varied widely by company, from a low of negative 58% for Pepco Holdings to a high of 41% for Coventry Health Care Inc. CVH +0.26% , the study said. GE’s effective tax rate for that period was negative 45.%. Read the full report here
For the 30 companies that paid no taxes or got rebates, their effective tax rate averaged negative 7% in that period. At the other end of the spectrum, 71 companies paid an average effective rate of 32%. Another 67 companies paid an average effective tax rate of zero, the study said.
To come to their findings, the study’s authors focused on companies’ 10-K filings — public financial statements filed with the Securities & Exchange Commission that include current federal income taxes. The report focuses solely on companies that reported a profit in each of the years 2008, 2009, 2010.
Some of the companies disagree with the findings. “The report is inaccurate and distorted,” said Kenny Juarez, director of financial communications for General Electric. “GE paid billions of dollars in taxes in the United States over the last decade, and we expect our overall tax rate will be approximately 30% in 2011.”
Pepco Holdings said in an emailed statement: “PHI pays all its required taxes [and] takes seriously its responsibility to adhere to legal tax requirements and its fiduciary responsibility to its customers and shareholders to minimize costs where possible.”
Big tax subsidies
The study also looked at tax subsidies — the difference between what a company would have paid if it paid a 35% rate on its profits and what it did pay. In the three years studied, the 280 companies earned a total of almost $1.4 trillion in pretax profits in the U.S. At a 35% rate, the tax bill would have been $473 billion, but as a group the companies paid about half that.
For all 280 companies, tax subsidies totaled almost $223 billion for the three-year period, and 25 companies got more than half of that total.
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