Corporate Taxpayers and Corporate Tax Dodgers, 2008-2010 Report By Citizens for Tax Justice and the Institute on Taxation and Economic Policy
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Corporate Taxpayers and Corporate Tax Dodgers, 2008-2010 Report By
Citizens for Tax Justice and the Institute on Taxation and Economic Policy
Citizens for Tax Justice is a nonpartisan research and advocacy group that fights
for tax fairness—at the federal, state and local levels.
Corporations can receive outright rebates by “carrying back” excess tax benefits to earlier years, and thereby getting cash refund from the IRS for taxes paid in the past. In addition, companies sometimes obtain favorable settlements of tax disputes with the IRS covering past years. Companies then recognize tax benefits that they did not disclose in
their prior financial reports to shareholders because they expected that the IRS would not allow them to keep the money.
The Institute on Taxation & Economic Policy has engaged in research on tax policy
In the 1980s, CTJ & ITEP collaborated on a series of studies about the taxes paid
or not paid by America’s largest and most profitable corporations. Those eye-opening reports played an important role in educating lawmakers about the tax
issues that were ultimately addressed in the Tax Reform Act of 1986.
This study takes a hard look at the federal income taxes paid or not paid by 280 of
America’s largest and most profitable corporations in 2008, 2009 and 2010. The companies in our report are all from Fortune’s annual list of America’s 500 largest corporations, and all of them were profitable in each of the three years analyzed. Over the three years, the 280 companies in our survey reported total pretax U.S. profits of $1.4 trillion
the federal corporate tax code ostensibly requires big corporations to pay a 35
percent corporate income tax rate, on average, the 280 corporations in our study paid only
about half that amount. And many paid far less, including a number that paid nothing at all.
Twenty-five years ago, President Ronald Reagan was horrified by a similar epidemic of
corporate tax dodging. “I just didn’t realize that things had gotten that far out of line,” Reagan reportedly told his Treasury Secretary. And Reagan solved the problem, by sweeping away corporate tax loopholes with the Tax Reform Act of 1986.
But over time, Reagan’s 1986 decision to get rid of corporate tax subsidies and make our
big corporations pay their fair share has been reversed. Ironically, that reversal has been led in large part by politicians who claim to be Reagan’s disciples
Twenty-five years after the major corporate tax reforms under Ronald Reagan in 1986, we now find the re-emergence of many of the problems that those reforms were designed to address, along with an array of new corporate tax-avoidance techniques.
Over the 2008-2010 period, three-year effective tax rates for the 280 companies ranged from a low of –57.6 percent for Pepco Holdings to a high of 40.8 percent for Coventry Health Care. Here are some startling statistics:
Seventy-eight of the 280 companies paid zero or less in federal income taxes in at least one year from 2008 to 2010. Twenty-five of these companies enjoyed multiple no-tax years, bringing the total number of no-tax years to 108. In the years they paid no income tax, these companies earned $156 billion in pretax U.S. profits. But instead of paying $55 billion in income taxes as the 35 percent corporate tax rate seems to require, these companies generated so many excess tax breaks that they reported negative taxes (often receiving outright tax rebate checks from the U.S. Treasury), totaling $21.8 billion.
These companies’ “negative tax rates” mean that they made more after taxes than before taxes in those no-tax years.
Thirty corporations paid less than nothing in aggregate federal income taxes over the entire 2008-10 period. These companies, whose pretax U.S. profits totaled $160
billion over the three years, in-cluded: Pepco Holdings (–57.6% tax rate), General Electric (–45.3%), DuPont (–3.4%), Verizon (–2.9%), Boeing (–1.8%), Wells Fargo (–1.4%) and Honeywell (–0.7%).
2009 was a particularly banner year for non-payment of taxes. In that year, 49 companies paid zero or less in federal income taxes. These 49 companies, one out of six of the companies in the study, told their shareholders they earned combined U.S. pretax profits in 2009 of $78.6 billion, yet they re-ceived tax rebates totaling $10.8 billion.
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.
Over the 2008-10 period, our 280 companies earned almost $1.4 trillion in pretax profits in the United States. Had all of those profits been reported to the IRS and taxed at the statutory 35 percent corporate tax rate, then the 280 companies would have paid $473 billion in income taxes over the three years. But instead, the companies as a group paid only about half that amount. The enormous amount they did not pay was due to the hundreds of billions of dollars in tax subsidies that they enjoyed.
Tax subsidies for the 280 com-panies over the three years totaled a staggering $222.7 billion ($61.4 billion in 2008, $76.2 billion in 2009 and $85.1 billion in 2010). These amounts are the difference between what the companies would have paid if their tax
bills equaled 35 percent of their profits and what they actually paid.
More than half of the total tax-subsidy dollars over the three years —
$114.8 billion — went to just 25 companies, each with more than $1.9
billion in tax subsidies.
# Wells Fargo topped the list of corporate tax-subsidy recipients, with
$18 billion in tax subsidies over the three years.
# Other top tax subsidy recipients included AT&T ($14.5 billion), Verizon
($12.3 billion), General Electric ($8.4 billion), IBM ($8.3 billion), Exxon Mobil
($4.1 billion), and Boeing ($3.6 billion).
Industrial machinery companies enjoyed the lowest effective tax rate over the three years,
paying a negative tax rate of –13.5 percent of their profits in federal income taxes. This
industry’s taxes declined sharply over the three years, falling to –36.4 percent of profits in 2010. These results were largely driven by a long-time champion tax avoider, General Electric, but GE was not alone. Four of the seven companies in this industry paid effective tax rates of less than 10 percent during the 2008-10 period.
# Other low-tax industries, paying less than half the statutory 35 percent tax rate over the entire 2008-10 period, included: Information Technology Services (2.5%), Utilities (3.7%), Telecom-munications (8.2%), Chemicals (15.2%), Financial (15.5%), Oil, Gas & Pipelines (15.7%), Trans-portation (16.4%), and Aerospace & Defense (17.0%).
# Only two industries, Retail & Wholesale Trade and Health Care, paid an effective tax rate of 30 percent or more over the full three-year period
“Top Defense Contractors” is not exactly an industry, but it is a group that paid notably low tax rates.
We examined the 134 companies in our survey that had significant pretax foreign profits (i.e.,equal to at least 10 percent of their total worldwide pretax profits), and compared the 2008-10
U.S. and foreign effective tax rates they paid. Here is what we found:
# Two-thirds of these U.S. companies paid higher foreign taxes on their foreign profits than they paid in U.S. tax on their U.S. profits.
# Overall, the effective foreign tax rate on the 134 companies was 6.1 percentage points higher than their U.S. effective tax rate — almost a third higher
Boeing. Recently, it was awarded a $35 billion contract to build new airborne tankers for the Air Force. That seems all well and good. After all, the contract was subject to competitive bidding, and Boeing won. And for its $35 billion, the Pentagon will get the planes it says it needs. But on top of that lucrative contract, Boeing gets a bonus. Over the past three years, Boeing reported $9.7 billion in pretax U.S. profits. But instead of paying the 35 percent corporate tax rate on those profits, Boeing received $3.5 billion in tax subsidies. As a result, it paid no federal income tax at all over those three years. The truth is that Boeing doesn’t need subsidies to build planes. It just needs someone who wants to buy them, such as occurred with the tanker deal.
In short important points of report
Corporations are lobbying for lower corporate rates and an exemption for profits they shift offshore. McIntyre, however, says “Our study provides proof that too many corporations are already being coddled by our tax system.” Findings in the report include:
The average effective tax rate for all 280 companies in the study over the three year
period was 18.5 percent; for the period 2009-2010 it was 17.3 percent, less than half the
statutory rate of 35 percent.
78 of the companies enjoyed at least one year in which their federal income tax was zero
30 companies enjoyed a negative income tax rate over the entire three year period on
their combined pre-tax profits of $160 billion.
Total tax subsidies given to all 280 profitable corporations amounted to $222.7 billion
Wells Fargo tops the list of 280 U.S. corporations receiving the most in tax subsidies,
getting nearly $18 billion in tax breaks from the U.S. treasury in the last three years.
Pepco Holdings had the lowest effective tax rate of all the companies in the study, at
negative 57.6 percent over the three year period
Some companies within sectors fare worse than others. For example, the report finds that
FedEx paid a 0.9 percent tax rate over the three year period while its competitor, UPS,
paid a 24.1 percent rate.
While retailers and wholesalers in the study generally pay average effective tax rates of
about 30 percent, Amazon.com paid a rate of only 7.9 percent on its $1.8 billion in profits
Financial services received the largest share (16.8 percent) of all federal tax subsidies
over the last three years. More than half of federal corporate tax subsidies for companies
in the study went to four industries: financial services, utilities, telecommunications, and
oil, gas & pipelines.
The top ten defense contractors saw their combined tax rate decline from 19.3 percent in
2008 to a mere 10.6 percent rate in 2010.
U.S. corporations with significant (ten percent or more of their total worldwide profits)
foreign profits paid tax rates to foreign countries that were almost a third higher than they
paid to the IRS on their domestic profits.
Read the complete Report
Corporate Tax Dodgers Report
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Friday, November 04, 2011
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