Thursday, Nov 17, 2011 1:00 PM 06:29:01 PST
Friday, Nov 11, 2011 9:01 AM 06:29:01 PST
Meanwhile, 25 of the Forbes top 100 companies paid their CEOs more than they paid Uncle Sam in 2010. Some of the big names are GE, Prudential and Verizon, all of which paid their CEOs well over $10 million, but paid no income tax whatsoever.
Thursday, Nov 3, 2011 9:37 AM 06:29:01 PST
Thursday, Nov 3, 2011 4:45 AM 06:29:01 PST
The corporate tax plunge: Down, down, down
Since the 1950s, American companies have paid a steadily smaller percentage of their profits as taxes
Topics:Taxes
We already know that compared to most rich countries in the world, corporations in the United States get off easy when it comes to taxes. We also know that many of the biggest American corporations don’t pay any taxes at all.
But if you are looking for one graphic illustration that speaks the most volumes about how great it’s been to be an American corporation over the past half-century, than you really must contemplate this chart put together by the St. Louis Federal Reserve Bank (Hat tip to Felix Salmon.)
But if you are looking for one graphic illustration that speaks the most volumes about how great it’s been to be an American corporation over the past half-century, than you really must contemplate this chart put together by the St. Louis Federal Reserve Bank (Hat tip to Felix Salmon.)
The percentage of corporate profit (after taxes) paid as income tax has been on a steady downward trend since the 1950s. In the last year or so, it has rebounded a trifle since hitting its all-time low during the Great Recession, but still sits comfortably below any other point in the last six decades.
It might be worth remembering that the 1950s were a decade in which “more people joined the middle class than at any time in history.” And yet, one of the great stumbling blocks preventing the “supercommittee” from hammering a long-term deficit reduction deal is the GOP fixation on the premise that taxes on American corporations are too high.
Continue ReadingIt might be worth remembering that the 1950s were a decade in which “more people joined the middle class than at any time in history.” And yet, one of the great stumbling blocks preventing the “supercommittee” from hammering a long-term deficit reduction deal is the GOP fixation on the premise that taxes on American corporations are too high.
- Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21. More Andrew Leonard
How to solve the corporate tax problem
Our globalized economy creates too many loopholes for multinational firms. It's time to push for a universal system
(Credit: AP/Mary Altaffer)
This originally appeared on KeriAnn Wells' Open Salon blog.
The United States is teeming for tax reform. Obama speaks eloquently of the rich “paying their fair share” while Republicans pledge never to raise taxes. Warren Buffett is taxed less than his receptionist. Occupiers rally for the 99 percent, while Tea Partyers rally behind 9-9-9.Meanwhile, 25 of the Forbes top 100 companies paid their CEOs more than they paid Uncle Sam in 2010. Some of the big names are GE, Prudential and Verizon, all of which paid their CEOs well over $10 million, but paid no income tax whatsoever.
That’s right, they paid nothing. This is especially strange since the U.S. recently surpassed Japan as the country with the highest corporate tax rate, weighing in at 35 percent.
But the rate doesn’t tell the whole story. Current rules for multinational corporations (MNCs) allow companies to defer income earned in other countries, effectively paying no taxes at all until the money is returned to the U.S., or “repatriated.” Companies can defer income indefinitely, and are currently salivating at the prospect of a tax holiday that would allow repatriation at a meager 5.25 percent. In the last holiday of 2004, higher corporate margins did not lead to more jobs.
Beyond deferrals, MNCs also can deduct taxes paid to foreign governments from their U.S. tax burden, and can even offset credits earned in high-tax countries onto income earned in low-tax countries.
These complex tax provisions are easy for some firms to exploit, especially if they have lots of tax attorneys. Last year, Bloomberg exposed Google’s fancy tax-avoidance technique known as the “Double Irish” and the “Dutch Sandwich.” (No, it is not a fun game of jump-rope.) While selling America’s intellectual property rights to overseas subsidiaries, Google aligned loopholes in four countries’ tax codes, ultimately reducing its total tax burden to 2.4 percent. In fairness, Google’s CEO made a measly $313,219.
This tendency of MNCs to find complementary loopholes among countries harkens back to the pre-globalization era, when multistate companies would shift operations to the lowest-tax states. The race to the bottom of tax revenues was relieved when states pooled their collective bargaining power to create more consistent tax rules.
To end the race to the bottom, states adopted a new approach to taxation. Known as formulary apportionment (FA), companies divide their total tax burden among host states based on the percentage of sales (and sometimes payroll and property) located in each state, rather than on the elusive headquarters’ location. The apportionment approach increases simplicity (which businesses love) and increases tax revenue (which governments love.) That’s what we call a win-win.
Of course, firms would not be happy with the change if it increased their tax burden. A shift to FA could be paired with lower tax rates to be revenue neutral, so America would no longer have the highest corporate tax rate. Policies designed to be revenue neutral, however, should err on the side of the Treasury, especially if we truly want to reduce the deficit.
The best global scenario is for all countries to adopt apportionment, so that MNCs would have one general tax rule to follow, rather than the current system where MNCs have different rules for every country in which they operate.
In the short term a truly global policy is unlikely. But the EU is now considering moving to apportionment, creating an opportunity for the U.S. to collaborate with Europe. We may even be able to leverage a U.S./EU partnership into a larger OECD policy. Basing taxes on sales would create a reasonably level playing field among all adopting countries. It’s time the private sector stop holding all the bargaining chips.
Even in the less ideal event that the U.S. adopt apportionment unilaterally, we would be at a competitive advantage for start-ups, since companies could avoid being doubly taxed on domestic sales. This would likely spur other countries to adopt FA. Some supporters of FA include Jason Furman, Deputy Director of the Obama Administration’s National Economic Council, and even Larry Summers.
FA would create jobs by removing existing incentives to shift production overseas. Increases in corporate tax revenue would allow the U.S. to invest in education and infrastructure, both known job creators. We would also have more capital to invest in new technology and innovation.
FA would prevent firms from exploiting international loopholes, ensuring that they pay their fair share. In this recession, we need to transfer more of the tax burden to corporations and their wealthy stakeholders, currently the only remaining untapped reserve of revenue. The middle class has been squeezed dry.
In fact, while most of us have seen our incomes grow less than 2 percent per year since 2000, the wealthiest 1 percent saw their incomes grow over 10 percent every year. This inequity has finally percolated into widespread demonstrations and unrest. The time is now for redistributive action.
Continue ReadingBut the rate doesn’t tell the whole story. Current rules for multinational corporations (MNCs) allow companies to defer income earned in other countries, effectively paying no taxes at all until the money is returned to the U.S., or “repatriated.” Companies can defer income indefinitely, and are currently salivating at the prospect of a tax holiday that would allow repatriation at a meager 5.25 percent. In the last holiday of 2004, higher corporate margins did not lead to more jobs.
Beyond deferrals, MNCs also can deduct taxes paid to foreign governments from their U.S. tax burden, and can even offset credits earned in high-tax countries onto income earned in low-tax countries.
These complex tax provisions are easy for some firms to exploit, especially if they have lots of tax attorneys. Last year, Bloomberg exposed Google’s fancy tax-avoidance technique known as the “Double Irish” and the “Dutch Sandwich.” (No, it is not a fun game of jump-rope.) While selling America’s intellectual property rights to overseas subsidiaries, Google aligned loopholes in four countries’ tax codes, ultimately reducing its total tax burden to 2.4 percent. In fairness, Google’s CEO made a measly $313,219.
This tendency of MNCs to find complementary loopholes among countries harkens back to the pre-globalization era, when multistate companies would shift operations to the lowest-tax states. The race to the bottom of tax revenues was relieved when states pooled their collective bargaining power to create more consistent tax rules.
To end the race to the bottom, states adopted a new approach to taxation. Known as formulary apportionment (FA), companies divide their total tax burden among host states based on the percentage of sales (and sometimes payroll and property) located in each state, rather than on the elusive headquarters’ location. The apportionment approach increases simplicity (which businesses love) and increases tax revenue (which governments love.) That’s what we call a win-win.
Of course, firms would not be happy with the change if it increased their tax burden. A shift to FA could be paired with lower tax rates to be revenue neutral, so America would no longer have the highest corporate tax rate. Policies designed to be revenue neutral, however, should err on the side of the Treasury, especially if we truly want to reduce the deficit.
The best global scenario is for all countries to adopt apportionment, so that MNCs would have one general tax rule to follow, rather than the current system where MNCs have different rules for every country in which they operate.
In the short term a truly global policy is unlikely. But the EU is now considering moving to apportionment, creating an opportunity for the U.S. to collaborate with Europe. We may even be able to leverage a U.S./EU partnership into a larger OECD policy. Basing taxes on sales would create a reasonably level playing field among all adopting countries. It’s time the private sector stop holding all the bargaining chips.
Even in the less ideal event that the U.S. adopt apportionment unilaterally, we would be at a competitive advantage for start-ups, since companies could avoid being doubly taxed on domestic sales. This would likely spur other countries to adopt FA. Some supporters of FA include Jason Furman, Deputy Director of the Obama Administration’s National Economic Council, and even Larry Summers.
FA would create jobs by removing existing incentives to shift production overseas. Increases in corporate tax revenue would allow the U.S. to invest in education and infrastructure, both known job creators. We would also have more capital to invest in new technology and innovation.
FA would prevent firms from exploiting international loopholes, ensuring that they pay their fair share. In this recession, we need to transfer more of the tax burden to corporations and their wealthy stakeholders, currently the only remaining untapped reserve of revenue. The middle class has been squeezed dry.
In fact, while most of us have seen our incomes grow less than 2 percent per year since 2000, the wealthiest 1 percent saw their incomes grow over 10 percent every year. This inequity has finally percolated into widespread demonstrations and unrest. The time is now for redistributive action.
Could the GOP actually be turning on Grover Norquist?
Dozens of House Republicans may be inching toward a confrontation with one of the most feared leaders on the right
Grover Norquist (Credit: AP)
Grover Norquist, who runs a fervently anti-tax interest group in Washington, is best known for the simple pledge that Republican candidates for Congress have learned to ignore at their own electoral peril. Signatories vow that they will:
ONE, oppose any and all efforts to increase the marginal income tax rates for individuals and/or businesses; and
TWO, oppose any net reduction or elimination of deductions and
credits, unless matched dollar for dollar by further reducing tax rates.
In the 112th Congress, the GOP’s positions has mirrored Norquist’s: No net tax increases, ever. Which is why President Obama’s efforts to strike a “grand bargain” during this summer’s debt ceiling drama failed so miserably. Obama dangled cuts in Social Security, Medicare and Medicaid spending in exchange for Republican support for modest increase in tax revenues. The plan was to cut the debt by $3.5 trillion over 10 years and House Speaker John Boehner was interested — until he discovered that signing off on the $400 billion in new revenues that Obama wanted might prompt a revolt within the GOP conference. So he walked away.
The same dynamic has thus far doomed the debt reduction “supercommittee” that was empaneled as a result of the debt ceiling compromise Obama and the GOP ultimately reached.
But now comes news that 40 House Republicans have joined with 60 Democrats to sign a letter to the supercommittee arguing that “all options for mandatory and discretionary spending and revenues must be on the table” and urging the panel to craft a plan for $4 trillion in debt reduction. Some of the Republican signatories aren’t big surprises; Virginia’s Frank Wolf, for instance, has been one of the few congressional Republicans to publicly challenge Norquist and his anti-tax adamance. But others, like Marlin Stutzman, a Tea Party favorite from Indiana who was elected last year, are.
There are two ways to read this development. One is that a significant number of congressional Republicans may finally be waking up to the fundamental incompatibility of Norquist’s pledge with the sort of deficit reduction that they believe is essential. This could ultimately give Boehner the cover that he lacked during the summer and allow him to sign off on the kind of deal that Obama was offering.
But it’s easy to get carried away. Saying that all options should be on the table during supercommittee discussions isn’t that hard. Even Norquist says he’s fine with the letter. “Consider anything,” he told the Washington Post. “Just don’t vote for a tax increase.” If it ever starts to look like Republicans on the supercommittee are close to a deal with real tax increases, you can bet the pressure from Norquist and the talk radio right that we saw this summer will be back in full force. Let’s see how these Republicans — and how their congressional leadership — reacts to that.
It’s also worth remembering the posture that Eric Cantor, the No. 2 Republican in the House, took over the summer. He won headlines for expressing his openness to closing tax loopholes in order to raise new revenue, but his statement came with fine print that was aimed squarely at Norquist: Any new revenue from the closed loopholes would have to be offset by tax cuts elsewhere. If this is what Republicans who signed the letter have in mind, it does nothing to increase the chances of a deal.
The letter also raises some questions for Democrats, who face pressure from their own base not to make deep cuts in the social safety net. But “all options for mandatory and discretionary spending” would obviously include Social Security, Medicare and Medicaid. There are probably more than a few on the left who’d just as soon see the GOP stick to its anti-tax absolutism, lest a grand bargain that threatens these programs be struck.
Continue ReadingThe same dynamic has thus far doomed the debt reduction “supercommittee” that was empaneled as a result of the debt ceiling compromise Obama and the GOP ultimately reached.
But now comes news that 40 House Republicans have joined with 60 Democrats to sign a letter to the supercommittee arguing that “all options for mandatory and discretionary spending and revenues must be on the table” and urging the panel to craft a plan for $4 trillion in debt reduction. Some of the Republican signatories aren’t big surprises; Virginia’s Frank Wolf, for instance, has been one of the few congressional Republicans to publicly challenge Norquist and his anti-tax adamance. But others, like Marlin Stutzman, a Tea Party favorite from Indiana who was elected last year, are.
There are two ways to read this development. One is that a significant number of congressional Republicans may finally be waking up to the fundamental incompatibility of Norquist’s pledge with the sort of deficit reduction that they believe is essential. This could ultimately give Boehner the cover that he lacked during the summer and allow him to sign off on the kind of deal that Obama was offering.
But it’s easy to get carried away. Saying that all options should be on the table during supercommittee discussions isn’t that hard. Even Norquist says he’s fine with the letter. “Consider anything,” he told the Washington Post. “Just don’t vote for a tax increase.” If it ever starts to look like Republicans on the supercommittee are close to a deal with real tax increases, you can bet the pressure from Norquist and the talk radio right that we saw this summer will be back in full force. Let’s see how these Republicans — and how their congressional leadership — reacts to that.
It’s also worth remembering the posture that Eric Cantor, the No. 2 Republican in the House, took over the summer. He won headlines for expressing his openness to closing tax loopholes in order to raise new revenue, but his statement came with fine print that was aimed squarely at Norquist: Any new revenue from the closed loopholes would have to be offset by tax cuts elsewhere. If this is what Republicans who signed the letter have in mind, it does nothing to increase the chances of a deal.
The letter also raises some questions for Democrats, who face pressure from their own base not to make deep cuts in the social safety net. But “all options for mandatory and discretionary spending” would obviously include Social Security, Medicare and Medicaid. There are probably more than a few on the left who’d just as soon see the GOP stick to its anti-tax absolutism, lest a grand bargain that threatens these programs be struck.
- Steve Kornacki is Salon's news editor. Reach him by email at SKornacki@salon.com and follow him on Twitter @SteveKornacki More Steve Kornacki
America’s corporate tax obscenity
A new report about companies' finances won't just enrage you -- it'll make you run to the nearest protest
(Credit: Reuters/Jose Luis Magaua)
Topics:Taxes
In 2010, Verizon reported an annual profit of nearly $12 billion. The statutory federal corporate income tax rate is 35 percent, so theoretically, Verizon should have owed the IRS around $4.2 billlion. Instead, according to figures compiled by the Center for Tax Justice, the company actually boasted a negative tax liability of $703 million. Verizon ended up making even more money after it calculated its taxes.
Verizon is hardly alone, and isn’t even close to being the worst offender. Perhaps most famously, General Electric raked in $10.5 billion in profit in 2010, yet ended up reporting $4.7 billion worth of negative taxes. The worst offender in 2010, as measured by its overall negative tax rate, was Pepco, the electricity utility that serves Washington, D.C. Pepco reported profits of $882 million in 2010, and negative taxes of $508 million — a negative tax rate of 57.6 percent.
Verizon is hardly alone, and isn’t even close to being the worst offender. Perhaps most famously, General Electric raked in $10.5 billion in profit in 2010, yet ended up reporting $4.7 billion worth of negative taxes. The worst offender in 2010, as measured by its overall negative tax rate, was Pepco, the electricity utility that serves Washington, D.C. Pepco reported profits of $882 million in 2010, and negative taxes of $508 million — a negative tax rate of 57.6 percent.
Altogether, according to “Corporate Taxpayers & Corporate Tax Dodgers 2008-10,” a blockbuster new report put together by the Citizens for Tax Justice and the Institute on Taxation and Economic Policy that will have you reaching for your hypertension medicine before you finish reading the third page, 37 of the United States’ biggest corporations paid zero taxes in 2010. The list is a blue-chip roll-call.
As the authors acidly note, “Most Americans can rightfully complain, ‘I pay more federal income taxes than General Electric, Boeing, DuPont, Wells Fargo, Verizon, etc., etc., all put together.’ That’s an unacceptable situation.”
The “high taxation” lie
Reading through this report, you will find yourself seized by an irresistible desire to hurl yourself headlong into the nearest OccupyYourLocalCity protest. In an era of crushing government deficits and mass unemployment, corporate America is not only skating blissfully free of its civic responsibilities, but continues to complain that it is paying too much in taxes. Even worse: Congressional Republicans and many Democrats agree! Listening to our politicians talk, you would imagine that corporate America’s neck is permanently under the tax man’s steel-tipped boot. When, in fact, the exact opposite is the truth.
The list of companies that paid zero taxes is only the beginning of the travesties documented by the report. The authors looked at the tax filings from 2008-2010 of 280 of the nation’s biggest, most successful corporations. These companies reported $1.4 trillion worth of profit during a period when most Americans were struggling to stay afloat. The authors discovered that the average effective tax rate — what the companies really paid after government subsidies, tax breaks and various tax dodges were taken into account — was only 18.5 percent, less than half the statutory rate. Fully a quarter of the 280 companies paid under 10 percent.
Remember that fact, the next time someone tries to tell you that American corporations pay the highest income taxes in the free world. The only number that counts is the “effective tax rate.” One of the interesting tidbits provided by the authors is that in many cases, the tax rate on foreign income for many of these companies is actually higher than the effective U.S. rate.
The most distressing part of the tale is the big picture: The overall trend line is pointed in exactly the wrong direction. If you break out just the years 2009-2010, the effective tax rate was 17.3 percent. “In 2008, 22 companies paid no federal income tax, and got $3.3 billion in tax rebates. In 2010, 37 companies paid no income tax, and got $7.8 billion in rebates.” When measured as a percentage of total GDP, over the last three fiscal years, “total corporate income tax payments fell to only 1.16 percent of the GDP … a new sustained record low since World War II.
A look at the list of the 10 corporations receiving the biggest tax-subsidy breaks from the U.S. government will defeat the ameliorating effects of any medication: Wells Fargo, AT&T, Verizon Communications, General Electric, International Business Machines, Exxon Mobil, Boeing, PNC Financial Services Group, Goldman Sachs Group, and Procter & Gamble. “56 percent of tax subsidies,” write the authors, “went to four industries: financial, utilities, telecom, oil/gas/pipeline.”
The companies that pay
However, not all companies are tax dodgers. Of the 280 companies analyzed by the authors, about 25 percent of the total paid close to the statutory rate, a little over 30 percent. But there’s no rhyme or reason to who pays or who doesn’t.
Continue ReadingAs the authors acidly note, “Most Americans can rightfully complain, ‘I pay more federal income taxes than General Electric, Boeing, DuPont, Wells Fargo, Verizon, etc., etc., all put together.’ That’s an unacceptable situation.”
The “high taxation” lie
Reading through this report, you will find yourself seized by an irresistible desire to hurl yourself headlong into the nearest OccupyYourLocalCity protest. In an era of crushing government deficits and mass unemployment, corporate America is not only skating blissfully free of its civic responsibilities, but continues to complain that it is paying too much in taxes. Even worse: Congressional Republicans and many Democrats agree! Listening to our politicians talk, you would imagine that corporate America’s neck is permanently under the tax man’s steel-tipped boot. When, in fact, the exact opposite is the truth.
The list of companies that paid zero taxes is only the beginning of the travesties documented by the report. The authors looked at the tax filings from 2008-2010 of 280 of the nation’s biggest, most successful corporations. These companies reported $1.4 trillion worth of profit during a period when most Americans were struggling to stay afloat. The authors discovered that the average effective tax rate — what the companies really paid after government subsidies, tax breaks and various tax dodges were taken into account — was only 18.5 percent, less than half the statutory rate. Fully a quarter of the 280 companies paid under 10 percent.
Remember that fact, the next time someone tries to tell you that American corporations pay the highest income taxes in the free world. The only number that counts is the “effective tax rate.” One of the interesting tidbits provided by the authors is that in many cases, the tax rate on foreign income for many of these companies is actually higher than the effective U.S. rate.
The most distressing part of the tale is the big picture: The overall trend line is pointed in exactly the wrong direction. If you break out just the years 2009-2010, the effective tax rate was 17.3 percent. “In 2008, 22 companies paid no federal income tax, and got $3.3 billion in tax rebates. In 2010, 37 companies paid no income tax, and got $7.8 billion in rebates.” When measured as a percentage of total GDP, over the last three fiscal years, “total corporate income tax payments fell to only 1.16 percent of the GDP … a new sustained record low since World War II.
Corporate taxes paid for more than a quarter of federal outlays in the 1950s and a fifth in the 1960s. They began to decline during the Nixon administration, yet even by the second half of the 1990s, corporate taxes still covered 11 percent of the cost of federal programs. But in fiscal 2010, corporate taxes paid for a mere 6 percent of the federal government’s expenses.How have these companies managed to cut their tax liabilities so far? The answer includes a mixture of targeted tax breaks that impact specific industries or companies, accounting games that corporations play with stock options, and sweeping adjustments to tax law such as changes in the rules in how companies can write off the value of depreciating equipment. The accounting rules for so-called accelerated depreciation are now so accommodating that companies can write off 75 percent of the cost of new equipment immediately.
A look at the list of the 10 corporations receiving the biggest tax-subsidy breaks from the U.S. government will defeat the ameliorating effects of any medication: Wells Fargo, AT&T, Verizon Communications, General Electric, International Business Machines, Exxon Mobil, Boeing, PNC Financial Services Group, Goldman Sachs Group, and Procter & Gamble. “56 percent of tax subsidies,” write the authors, “went to four industries: financial, utilities, telecom, oil/gas/pipeline.”
The companies that pay
However, not all companies are tax dodgers. Of the 280 companies analyzed by the authors, about 25 percent of the total paid close to the statutory rate, a little over 30 percent. But there’s no rhyme or reason to who pays or who doesn’t.
DuPont and Monsanto both produce chemicals. But over the 2008-10 period, Monsanto paid 22 percent of its profits in U.S. corporate income taxes, while DuPont actually paid a negative tax rate of –3.4 percent. Department store chain Macy’s paid a three-year rate of 12.1 percent, while competing chain Nordstrom’s paid 37.1 percent. In computer technology, Hewlett-Packard paid 3.7 of its three-year U.S. profits in federal income taxes, while Texas Instruments paid 33.5 percent. FedEx paid 0.9 percent over three years, while its competitor United Parcel Service paid 24.1 percent.The authors conclude on a wistful note, with a list of what Washington could do to bring sense and reason to corporate taxation, while providing the government with desperately needed revenue. But as the authors themselves readily acknowledge, their recommendations exist in an alternate universe from the one that we actually happen to live in.
Unfortunately, corporate tax legislation now being promoted by many in Congress seems stuck on the idea that as a group, corporations are now either paying the perfect amount in federal income taxes or are paying too much. Many members of the tax writing committees in Congress seem intent on making changes that would actually make it easier (and more lucrative) for companies to shift taxable profits, and potentially jobs, overseas. Meanwhile, GOP candidates for president are all promoting huge cuts in the corporate tax or, in several cases, even elimination of the corporate income tax entirely.And that, ultimately, is the most enraging fact about the new report from the Citizens for Tax Justice and the Institute on Taxation and Economic Policy. It won’t make a darn bit of difference.
- Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21. More Andrew Leonard
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