Monday, November 7, 2011

How Corporate Tax Dodgers Hoarded $2 Trillion

It was estimated that the Bush tax cuts in 2001 cost the U.S. Treasury $1.4 trillion in lost revenues. Now in 2011 corporate America is sitting on a colossal $2 trillion in cash. But tax cuts for the wealthy and corporations go back much further.

Historical Corporate Tax Rates
From 1969
(highest) to the Present
Year/s Tax Rate
1969 52.8%
1970 49.2%
1971 - 1978 48%
1979 - 1986 46%
1987 40%
1988 - 1992 34%
1993 - 2011 35%
Over a quarter century ago, in 1984, the Washington, D.C.- based Citizens for Tax Justice released its first in-depth report on how much America’s top profitable corporations were actually paying in taxes.

America’s top companies, this initial study found, were paying only 14.1 percent of their profits in taxes, less than a third of the corporate tax rate then in effect.

That startling report left a bit of an uproar in its wake. Corporate tax loopholes would go on to figure prominently in the 1986 tax reform debate. The tax legislation eventually enacted would plug a host of them.

But the 1986 tax reform legislation also slashed tax rates on high personal incomes. Corporate earnings now faced a higher tax rate than the income wealthy Americans reported on their personal tax returns.

What happened next? The obvious. Businesses that could easily change their tax status, to take advantage of the new lower personal tax rates, reorganized into “sole proprietorships” and the like. Income that had been taxed at corporate rates now began showing up on individual tax returns.

This tax-status makeover would not be an option for America’s biggest corporate powerhouses. G.E. could not become a “sole proprietorship.” So execs at these corporate giants did the next best thing. They invested heavily in politics and had their lobbyist legions carve out huge new loopholes in the tax code.

The latest Citizens for Tax Justice corporate tax report, released last week, details the result: America’s top corporations are now getting what essentially amounts to a 50 percent discount off their tax bills.

By current statute, corporations are supposed to face a basic 35 percent income tax on their corporate profits. Over the last three years, the new Citizens for Tax Justice report documents, top U.S. corporations have actually been paying only 18.5 percent of their profits to Uncle Sam.

Corporations, in effect, have achieved total tax loophole parity with America’s individual super rich.

The nation’s top 400 income-earners, the latest IRS stats show, are supposed to be paying taxes on their top-tax bracket income at a rate of 35 percent, the same as the current corporate rate. These 400 mega millionaires and billionaires are actually paying taxes at an effective rate of only 18.1 percent.

How are corporations getting what amounts to a 50 percent tax discount? The new Citizens for Tax Justice research walks us through all the major loopholes.

Corporate executives, the group’s new report explains, are shifting and stashing their corporate profits overseas. They’re taking huge “accelerated depreciation” write-offs on suspect investments. They’re even, incredibly enough, turning their own stock option windfalls into super corporate tax savings.

This infuriating stock option loophole works like this: Corporations grant their top execs “options” to buy millions of shares of company stock at a cost below the going market rate. The companies then deduct off their corporate taxes the difference between the price executives pay to get the shares and the higher marketplace price they get when they sell them.

Two-thirds of the 280 corporations Citizens for Tax Justice examines in the group’s new corporate tax report claimed these option deductions over the 2008-2010 period. These deductions saved the 185 corporations involved $12.3 billion.

Overall, the 280 profitable companies that the new Citizens for Tax Justice study focuses in on grabbed a combined $1.4 trillion in profits over the 2008-2010 time span. These 280 could have paid, under the tax code, over $473 billion in federal corporate incomes taxes. They actually paid only $250.8 billion.

The tax subsidy “discount” for 2010 alone: $85.1 billion. Over a decade, that level of annual tax avoidance adds up to well over three-quarters of a trillion dollars, enough to fill all sorts of holes in the federal budget — and “avoid” massive cuts in public services.

Another perspective on the new Citizens for Tax Justice numbers: In the 1950s tax dollars from corporations offset about a quarter of federal outlays. Last year, corporate tax dollars covered only 6 percent of federal expenditures.

Shutting off corporate tax loopholes, concludes Citizens for Tax Justice, would bring “real benefits” for Americans, everything from “reduced federal budget deficits” to “more resources to improve our roads, bridges, and schools — things that are really important for economic development here in the United States.

But closing off corporate tax loopholes would not bring “real benefits” to everybody. The power suits who run America’s top corporations are enjoying “real benefits” that plugging tax loopholes would immediately jeopardize.

In 2010, Institute for Policy Studies researchers revealed earlier this year, CEOs at 25 of America’s largest corporations — major firms that range from Boeing to Verizon — took home more in personal compensation than the companies they run paid in federal income tax. These top execs averaged $16.7 million each.

Rewards this impressive give top corporate executives a powerful incentive to continue their tax avoiding ways.

In the 1950s, by contrast. this incentive did not exist. CEOs back then had a distinctly limited income upside. A powerful trade union presence in America’s workplaces and tax rates as high as 91 percent on personal income over $400,000 served to keep huge corporate executive windfalls off the table.

Those windfalls now cover our corporate table. We need to knock them off.

From by Robert S. McIntyre, Matthew Gardner, Rebecca Wilkins, and Richard Phillips, Corporate Taxpayers & Corporate Tax Dodgers 2008-10. A Joint Project of Citizens for Tax Justice and the Institute on Taxation and Economic Policy. Washington, D.C., November 2011.

* All throughout the 1950s the corporate tax rate was 52%

Low Corporate Taxes = Excessive CEO Salaries

It doesn't matter what a corporation pays in taxes as compared to GDP, or how it's compared to any other index of measure (to skew the numbers), it's what they actually pay to the U.S. Treasury after loopholes (aka "deductions") that matters most. And for the last 25 years corporations have actually paid historically low taxes.

While today some corporations may have paid the maximum rate of 35% (when it was over 50% in the 1950s), many others paid ZERO, with the average being only 18%.

The same can be said for their CEOs and other high-income earners. While although the top bracket is also almost historically low (at 35%, when it was once over 90%), what they actually pay is nearer to 15% because the majority of their income is earned through capital gains.

And because corporations have been paying a low effective corporate tax rate for decades, that didn't keep them from outsourcing jobs overseas for cheap labor, but rather, it did enable them to pay very excessive CEO salaries...who only mostly pay 15% in federal income taxes on their capital gains.

1 comment:

  1. John Boehner saying we don’t have a revenue problem is like the Iranian president saying the Holocaust was a myth. Today we have the lowest capital gain tax in the history of our tax code, and corporate taxes are lower than they've been since 1969.

    Tax Rates during the Fabulous Fifties