That Terrible Corporate Tax Burden

One of the reasons I became a faithful reader of Ed Brayton’s Dispatches from the Culture Wars is that he disdains the euphemisms that “polite” commentators use to convey their criticisms, and simply tells it like it is. A good example is a recent post about the “confusion”–or deliberate obfuscation–surrounding discussions of corporate tax rates.

As he began,

Republicans love to claim that America’s corporate taxes are the highest in the developed world. This is a lie. The marginal tax rates, up to 35%, are among the highest. The actual rates paid are a fraction of that. In fact, some of the most profitable companies in the world pay no federal taxes at all.

The Institute on Taxation and Economic Policy used the tax information filed by  258 profitable Fortune 500 companies to analyze what those corporations actually paid. The companies chosen for the analysis collectively earned more than $3.8 trillion in profits over the eight-year period of the analysis.

Although the top corporate rate is 35 percent, the study found that 100 of the companies  — nearly 40 percent — paid zero taxes in at least one year between 2008 and 2015.

Eighteen, including General Electric, International Paper, Priceline.com and PG&E, incurred a total federal income tax bill of less than zero over the entire eight-year period — meaning they received rebates.

This result was entirely legal. The companies simply took advantage of numerous loopholes in the tax code. Some, including American Electric Power, Con Ed and Comcast, qualified for accelerated depreciation. That allowed them to write off most of the costs of  new equipment and machinery well before it wore out–or in “tax speak,” well before before the end of its “useful life.”

Facebook, Aetna and Exxon Mobil, among others, saved billions in taxes by giving options to top executives to buy stock in the future at a discount. The companies then get to deduct their huge payouts as a loss. Facebook used excess tax benefits from stock options to reduce its federal and state taxes by $5.78 billion from 2010 to 2015, the institute found.

As Ed reminds us, “In the 1950s, corporate taxes were about one-third of all federal revenue; today, it’s under 10%. And the burden is then transferred to individual taxpayers.”

Conservative economists will remind us that ultimately, individual consumers will pay corporate taxes–that the taxes companies pay will be factored into the prices of the goods they sell. And that is absolutely true. But it is a far fairer and much more honest way to do business.

The prices of consumer goods should reflect the actual cost of producing them, and taxes are–or should be– part of that cost. We don’t want the manufacturer who is “disposing” of his waste illegally to be able to undercut the prices of the guy who is following the rules, and we don’t want companies with more “creative” tax avoidance strategies to undercut competitors who are paying their fair share . Capitalist markets only work properly when pricing is honest.

Our current system doesn’t reward innovation; it rewards “game playing.” Lobbyists sneak arcane loopholes into our increasingly complicated tax code. Those loopholes further tilt the playing field, distorting market forces in ways that favor the companies that  can afford the lobbyists.

I’m all in favor of lowering the top marginal corporate tax rate, if we get rid of the loopholes at the same time. (We should start with those that provide an incentive for moving American businesses to off-shore tax havens–but we shouldn’t stop there.)

The current system allows corporations to whine about the tax rate in public, while making out like bandits behind the scenes. It’s dishonest, it’s anti-competitive, and it shifts the tax burden in ways that are unfair to individual taxpayers and a drag on the economy.

A responsible Congress would eliminate or dramatically reduce the loopholes and readjust the tax burden. Our Congress, however, is too busy making the system worse.

23 thoughts on “That Terrible Corporate Tax Burden

  1. Getting rid of the loopholes is a great idea, but there will be a lot of resistance to that idea. After the first set of tax cuts in the Reagan administration, I compared my taxes before and after the cut. It was a good time to do it, because my income was flat over that period. After the tax cuts, my marginal tax rate went down, but I paid more in taxes because I could no longer deduct the interest from an automobile loan and a personal loan. Of course, those who could no longer deduct losses from cattle ranches in Montana or ownership of NFL teams complained, but they got about a 30% drop in their tax rate, so they came out way ahead. But I doubt that the guys in charge today will do away with the loopholes.

  2. And the second part of the story, is that those corporations, who paid little or nothing, lobbied Congress to get those “loopholes.”

    I shouldn’t have been, but when I saw Trump giving the same campaign stump speech in Nashville to his diehard supporters, I was shocked. I’m amazed at how I keep thinking it’s going to get better anytime soon.

  3. Poor corporate people, poor 1%, poor, poor Trump and all others who have the ADVANTAGE of using loopholes. Where are our loopholes as tax paying American citizens?

    The “special package rate” on my Bright House bundle (cable, Internet, land line phone in case I need to call 911) ended; the new rate is almost 1/4th of my entire Social Security check. In addition to the actual services are state taxes, franchise fee, Federal regulatory user fee, state sales taxes again, more state sales taxes, state telecom relay system, state utilities receipts tax (WTF is this?), Federal universal service fund fee, county 911 fee and regulatory cost fee. There is also an additional charge for Regional Sports Network fee (which I don’t watch) and the Broadcast TV fee to receive SOME, but not all, local channels. This is all ONE BILL.

    IPL has the state tax; my bill increased by 35% (due to the cold weather they said); other people’s bill went up much more. Included in these increased bills was the notice that IPL has requested a rate hike. Citizens Energy Group has sales tax on gas and water. Of course there is Indiana 7% sales tax on everything but some, but not all, food products.

    We are all currently waiting for the decision regarding the rate increase requested by IPL; the major environment polluter in the state. As I asked before; where are our loopholes? Old age and disability provide none, nor does minimum wage. Our state Congressional members are too busy supporting pseudo-Christian issues to consider much else. Assistance for seniors and disabled in this state is almost non-existent as is public assistance for those who need and deserve it. Control over privately owned solar panels appears to be uppermost in the minds of our elected officials; those who would most benefit by the savings of using solar panels, cannot afford them.

    “That Terrible Corporate Tax Burden” is also an issue for all of us as we are the ones who make up the difference for what they do NOT pay by using those loopholes. At almost 80 years of age with an income barely above federal poverty level; percentage-wise MY tax burden is much greater than Corporate America’s.

  4. The problem with getting rid of the loopholes is that some loopholes are good things. Could we even begin to trust the Congress to identify the good and keep those? I don’t think so.

  5. There is no such thing as “corporate tax reform”. There is only “tax reform”, which should examine, and restructure if necessary, ALL sources of federal revenue including both individual and business taxes. “Corporate tax reform” is simply a convenient euphemism for “special interest tax cuts”.

  6. The republicans were pointing their health care act, not as means to provide health coverage to those who can least afford it, but as deficit reduction. The deficit exists because of their insane tax policies that reward the wealthiest at the expense of everyone else. If they were serious about reducing the deficit, they could simply raise taxes on those who can afford to pay more, remove the cap on Social Security withholding to fund that program until boomers are dead.

    I was thinking about what made America great the first time. During my lifetime I have seen the development of interstate highways and other infrastructure that was paid for by everyone – wealthy people paid more than less wealthy people, but everyone paid and everyone enjoyed the benefits.

    The mindset changed during the 1970s and 1980s centered around taxation. What we have now is a tax code that has bent over backwards to provide benefits to those that need the least and transferred the burden to those that can afford the least. America was great because we had shared goals and shared burdens.

    Now it’s all about what the wealthiest can still grab from the politicians they own. Consequences be damned.

  7. Could a national sales tax help? Cadillac buyers pay more tax than a Chevy buyer?
    Food and RX not taxed.

  8. Jo Ann, as usual, you have hit the nail on the head.

    daleb, there is another big problem with the Trumpcare plan that I have not seen addressed by any news outlet, much less Congressional spokesperson. That problem is the 1.2 trillion “savings” by cutting and gutting Medicaid. A small part of that “savings” will go to the top 1% in tax breaks and the rest to reduce the deficit. Or so they tell us. But let us look at what happens to the health care industry if you take 70 billion a year out of that economic entity. Will construction stop on hospital expansions? Will charges for services increase to make up the difference? Will those “savings” hit the pharmaceutical industry and the stock market? Will jobs be lost in poor rural areas of the country where large percentages of residents are covered by Medicaid? Think small rural hospitals closing.

    The ripple effects of this so called health care bill will, IMO, be devastating to all of us in ways yet unseen.

  9. It so happens that I have had some experience in tax matters in my law practice of years ago, including a stint as Deputy Attorney General where international taxation by treaty as well as the code was involved. I found that Japanese corporations with American-sourced income were just like American taxpayers; they don’t want to pay.
    The maximum corporate rate today is far below what it was during WW II and thereafter and, of course, the claim that we must reduce such a confiscatory rate is phony; it is not the maximum rate but rather the effective rate paid by corporations that is the real scandal, as pointed out by Shelia.
    It is not only rate; that’s a whining cover for more loopholes for lobbyists on bended knee (and open checkbooks for “campaign contributions”) with House Ways and Means members and others in a position to influence tax policy. It is loopholes that provide for giant profits but no tax liability for major American corporations (see GE in 2010) and tax avoidance by such as Apple who confuse regulators with their Home Office pretenses and retained profits overseas which are not taxable until repatriated.
    I could go on in a case by case analysis of a tax code badly in need of reform, but not the “reform” we are finding in the current health care proposal by Republicans, which is nothing more than an immense tax cut for the rich and corporate class somehow placed in an ostensible health code. Guess who has to pick up the slack when corporations pay such puny revenues? Look in the mirror.

  10. Why all the discussion. Relax. There’s nothing to discuss. It’s simply NATIONAL SUICIDE. That’s all. Enjoy life while you can.

    G-d save the rest of the world.

  11. We suffer greatly from oligarchy, the purchase of power and influence. Government of, by, and for the people has been taken over, coup d’état, by private and corporate aristocracy empowered by mass media. We have become what we used to call a third world banana republic of aristocracy and serfdom.

    If that is sustainable we are stuck here for a long time. If the house of cards collapses (as I personally believe it must) there’s a chance that democracy can be rebuilt from its ashes.

    Not much of a future for everyone but the only ones who can avoid the trauma are the perpetrators who will have looted what’s been built over the decades and are wealthy enough to escape to foreign shores.

    The end of America as a world leader and shinning example of democracy.

  12. The tax code is just cover for “highway robbery.” Much like Gerald, I had a stint as a government trial attorney, but with the Treasury Department in the Tax Court of the U.S. in Dallas. I had the opportunity with two other attorneys to successfully sue the richest man in the world at that time. H. L. Hunt.

    He was nothing but a two-bit criminal. That’s how he made his first “buck.” His buddies were no better. I was General Counsel for another one, B. L. McLendon, know as “Black Bart,” the meanest man in Texas. I had to resign when I figured out he was setting me up for extortion in order that I would be hard press to turn down his instructions for me to pay off one of my high- level friends in the Internal Revenue Service.

    Back in those days in the 60’s, the head of the Internal Revenue Service had to resign in disgrace over influence peddling. It’s much worse now. It’s “legal robbery.”

  13. I always thought any corporation that actually pays 35% in taxes needs a new financial officer.

  14. Spot on everybody. Nice to be back. Sorry, I’ve been absent as I have a mess here in Tucson to clean up. The yard is a jungle and the house needed a good wipe. It’s so great to be back and see sunny skies.
    When I get caught up, I’ll share my discussion with the direct tv installer. I wore him down on politics but he started it when he said, I’m a conservative that believes in global warming. lol

  15. Pete @ 10:21 >> Government of, by, and for the people has been taken over, coup d’état, by private and corporate aristocracy empowered by mass media. < Indianapolis, as noted, has been paying the Pacers $33 million over the past three years just to keep playing in their taxpayer-provided arena. The deal solidifies the city as a rare winner of the sad trifecta of supplying 100% of arena construction costs, collecting no rent or other revenues, and then paying the team to play in its free arena. Indianapolis doesn’t so much host an NBA team as lease one.<<< http://www.fieldofschemes.com/2014/04/10/7122/indianapolis-throws-yet-another-160m-at-pacers-because-thats-what-indianapolis-does/

    I said Republicrat above because both political parties at the state and local level eagerly embrace Corporate Welfare for our Professional Sports Teams. Our local Mc-Mega-Media will never label this scheme as Corporate Welfare.

  16. I had another paragraph concerning the Republicrat Party here in Indiana and Indianapolis in particular in my prior post. The Republicrat Party is the third leg of the stool including corporate aristocracy and mass media. The Republicrat Party made it possible to collect three taxes: Food and Beverage tax (on restaurants) a hotel-motel tax and a car rental tax. These taxes are then used to build and maintain the stadiums.

  17. Corporations have one rule. Make more money regardless of the impact on others.

    The current mess is just them acting as they are designed to act, without morals but within the law.

    There are two “faults” here at play that are different than “in the day”. The prime one is mass media brainwashing which allows the gathering of votes through fake news. That has led to party or politician over country as now competence has been disconnected from getting elected or re-elected.

    Can we redesign democracy to avoid the mass media trap?

    I dunno.

  18. Americans need billionaires to step up and support fair corporate taxes.

    They owe it to the world which gave them so much to work with. They have the knowledge, skills and resources to turn this in the right direction

  19. Dave Hill

    “They have the knowledge, skills and resources to turn this in the right direction.”

    Yes, those qualities would all be necessary for such a turn, but they are missing the two most necessary qualities: morality and ethics. You can’t buy those, and even if you could, they would not want to pay the price.

  20. A corporate charter is a contract between the state and incorporators which, inter alia, immunizes officers and shareholders of the corporation thus formed from personal liability for the acts of the corporations. Theoretically, shareholders bear the brunt should there be bankruptcy or business reverses resulting in losses (that is, unless you are a Wall Street bank with FDIC-insured money in hand for the purchase of credit derivatives and bailouts available so that shareholders have no risk). One would think that with all the advantages available to corporations that they would feel some obligation to pay reasonable rates of taxation to the common weal; one would be wrong. As suggested by Pete, corporations are soulless enterprises designed only to make profit and myopic as to consequence, and since taxes are a drag on profits, it makes sense that there is no sense of obligation to help pay for roads, streets, police and fire protection etc. None. I think that it is a bad future for the rest of us when combinations of the soulless are in charge of our lives, hence my constant carping on our fate if the rich and corporate class finally destroys our democracy.

  21. When the ACA was passed the Medicaid expansion was going to substitute for direct subsidies to hospitals. If Trumpdontcare passes I believe you will see a lot of hospitals in low income urban centers and rural areas fail simply because of lack of funds. Don’t fall for the Republican Party line that you can get treated in the emergency room those are going away as a result of the combination of ACA and ACHA.

    The government requires public hospitals to treat indigent patients in the emergency room without compensation. It’s an unfunded liability . ERs bill the indigent and don’t get paid. Hospitals pass the costs on to other patients. What’s happened is high profit practices open private hospitals like orthopedic hospitals so they don’t have to bear the cost of the indigent. Apparently it’s cheaper to open your own hospital and bear the administrative and building cost burden than to work in a public hospital. The public hospitals lose the income from those practices further burdening the remaining practices. Plus the uninsured seeking care in the ER has the most expensive care option. It’s lose lose. The worst possible option. We can do better than this

Leave a Reply

Your email address will not be published. Required fields are marked *