Are we really surprised that most US corporations pay less in taxes on a percentage basis than average citizens? That's why they employ so many lawyers and accountants. And we wouldnt want to add to the national unemployment statistics.
To their dubious credit, some of these companies were simply applying tax credits they had been granted by a grateful Congress. That they lobbied hard for those credits should be duly noted, but hey, it's the American Way and they muscled those concessions out of Congress fair and square - or what passes for it these days.
And the fact that the financial services industry, led by the aggressive Wells Fargo bank, garnered most of the tax deferral action can hardly come as a surprise to a public inurred to years of financial legerdemain. But the timing of the report is, shall we say, a trifle awkward: the Chair of the House of Representatives' Ways and Means Committee, arguably the most powerful in Congress due to its oversight of tax policy, is about to issue a recommendation that corporate tax rates be lowered. Now we suppose it is theoretically possible to 'pay' less than nothing in taxes - this is Washington, after all, where creativity and innovation are deeply respected. But we suspect that even the corporate apologists are going to have a tough time talking their way around this one.
The problem, in all seriousness, is competitiveness. Former Citibank CEO Walter Wriston once said that 'money goes where it is respected and stays where it is well-treated.' With all of the game playing and ideological chest thumping going on, foreign investors have become wary because the policies emerging defy common sense. And while everyone likes a good deal, the US has been the world's economic safe haven because it has had a history of tough minded decision making in which partisan zeal always gave way to bottom line pragmatism. It is little wonder that investors are looking elsewhere now. JL
Steven Sloan reports in Bloomberg:
Thirty companies including General Electric Co. (GE), Verizon Communications and Boeing Co. (BA), didn’t pay federal income tax between 2008 and 2010 though they earned a combined $160.3 billion in pretax U.S. profits in that period, according to a report released today.
The data compiled by Citizens for Tax Justice, a Washington-based interest group backed by labor unions, expands on a study released in June that focused on 12 companies. The new report analyzes the taxes paid by 280 Fortune 500 companies that were profitable between 2008 and 2010.
The research found that 40 percent of the companies studied -- or 111 firms -- paid an effective tax rate of less than 17.5 percent after claiming deductions or credits that lowered their tax bill. The effective tax rate for one quarter of the companies exceeded 30 percent, according to the analysis. The top U.S. corporate tax rate is currently 35 percent.
The report is being released as House Ways and Means Committee Chairman Dave Camp, a Michigan Republican, is considering a rewrite of the U.S. tax code that would lower the top corporate rate to 25 percent. He released a proposal last week that would allow U.S.-based companies to exempt 95 percent of profits held offshore from taxation.
“The U.S. Congress may be surprised given all the business lobbying that so many of these companies are paying so little in taxes,” said Robert McIntyre, director of Citizens for Tax Justice.
GE Says ‘Inaccurate’
The report said GE earned $10.5 billion in pretax profit and had an effective tax rate of negative 45.3 percent in 2008- 2010. Kenny Juarez, a GE spokesman, called the Citizens for Tax Justice report “inaccurate and distorted.”
“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 percent in 2011,” he said in an e-mailed statement. “We believe the U.S. tax system needs to be reformed to close all loopholes, to lower the corporate rate and to provide a territorial system like every other major country in the world.”
Charles Bickers, a Boeing spokesman, said the report “incorrectly states that we did not pay federal taxes.” He said the company took advantage of tax benefits designed to support manufacturing activities.
“Even at the depths of the recession, Boeing made substantial investments in our U.S. manufacturing capacity, in the retirement security of our employees (funding our pension plans) and in the development of innovative new products,” he said in an e-mail. “Many of those investments are incentivized specifically by federal tax laws.”
Using Tax Benefits
Some of the companies surveyed were able to take advantage of tax benefits to reduce their tax bill. For example, hospital operator Tenet Healthcare Corp. (THC) said in its 2011 annual report that it had $2.2 billion in net operating loss carryforwards as of Dec. 31, 2010. That allows a company to spread deductions from unprofitable years over time and helps reduce taxable income.
Citizens for Tax Justice said Tenet’s tax rate between 2008 and 2010 was negative 11.6 percent. The Dallas-based company has said its 2011 effective tax rate is 37.5 percent.
A company with a negative tax rate effectively received a benefit from the government.
Duke Energy
The analysis said Duke Energy Corp. (DUK)’s tax rate was negative 3.9 percent on three-year pretax profits of $5.5 billion. Thomas Williams, a spokesman for the Charlotte, North Carolina company said its tax rate was lowered by bonus depreciation, which allows a company to deduct a higher than usual percentage of the cost of capital purchases in the first year. The company has “large capital budgets” that support, among other items, four new power plants Duke brought on line last year, Williams said.
“We are not unique among utilities,” he said. “Companies with lots of” capital expenditures “are benefitting.”
Companies included in the report were critical of its findings. Robert Varettoni, a spokesman for Verizon Communications Inc. (VZ), said Citizens for Tax Justice has issued reports that have been “more politically motivated than truthful.”
Varettoni said Larry Cohen, the president of the Communications Workers of America, sits on the board of Citizens for Tax Justice. The union helped coordinate a strike among Verizon employees this summer.
The group said Verizon had $32.5 billion in pretax profits between 2008 and 2010 and had a negative tax liability of $951 million that resulted in a tax rate of negative 2.9 percent in those years. In an e-mail, Varettoni said the company “fully complies with all tax laws and pays its fair share of taxes.”
Citizens for Tax Justice didn’t take into account the company’s deferred tax liability that hasn’t been incurred, Varettoni said. He said 45 percent of the income attributed to Verizon is taxable to U.K.-based Vodafone Group PLC. (VOD)
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