Corporations Don’t Need More Tax Breaks
by Linda Beale
Corporations Don’t Need More Tax Breaks
If you listen to the corporate lobbyists, and the right-wingers who plead their cases for them in Congress and in the media, you’d think that corporations are so heavily taxed that it is threatening their ability to continue to conduct business and be competitive in world markets. But is that really the case? This blog has often pointed out two obvious shortcomings in the corporate whine: first, the corporate statutory rate of 35% is honored in the breach–most corporations pay actual tax rates so significantly lower than 35% that the statutory rate is an illusion; and second, as far as global competitiveness is concerned, the corporate tax rate is the only significant tax that US corporations pay, whereas most other countries have both corporate income taxes and VAT taxes, often paid at each transactional stage of production.
A site called “NerdWallet” provides considerable information based on analysis of the financial statements of companies, providing greater transparency for investors and, lucky for us, for those of us interested in tax facts. See, e.g., the NerdWallet study, Top Companies Paid 9% Tax Rate (July 24, 2012).
Because tax provision includes both domestic and foreign, current and deferred taxes, NerdWallet researched further to find how much was actually paid by these American companies to the U.S. federal government in the most recent tax year. By dividing the current portion of federal taxes by pre-tax income, NerdWallet was able to calculate the percentage of these companies’ earnings that was paid to the U.S. government. For the ten American companies with highest earnings in the most recent fiscal year, this number averaged 9%. NerdWallet Study (emphasis added).
A press release about the study notes just how much corporate taxation has shrunk as a source of revenue in the US, as corporations pay lower rates than ordinary Americans.
A new NerdWallet study found the 10 most profitable U.S. companies paid an average of just 9% in federal taxes last year. These low rates are particularly shocking given that the official tax rate is 35%. The study also revealed that more than half of the 500 largest U.S. companies paid a lower tax rate than the average American. NerdWallet press release (July 30 2012).
NerdWallet also has a very useful tool for seeing what each major corporation of the top 500 actually pays in taxes, available here. You can scroll through a list of corporations to select a particular one of interest, and the tool will show the actual rate of taxes paid to the U.S. government, the compensation paid to the CEO, and the average compensation for the company’s employees, as well as the multiple of the CEO compensation to the average employee compensation. For example, the tool provides the following information for several of the largest of the 500 corporations.
1. Exxon Mobil Pre-tax Earnings: $73.3 Billion Actual Taxes Paid: $1.5 Billion (2%)
2. Chevron Pre-tax Earnings: $46.6 Billion Actual Taxes Paid: $1.9 Billion (4%)
3. Apple Pre-tax Earnings: $34.2 Billion Actual Taxes Paid $3.9 Billion (11%)
4. Microsoft Pre-tax Earnings: $28.1 Billion Actual Taxes Paid: $3.1 Billion (11%)
5. JPMorgan Chase & Co Pre-tax Earnings: $26.7 Billion Actual Taxes Paid $3.7 Billion (14%)
cross posted with ataxingmatter
Oh dear.
“and second, as far as global competitiveness is concerned, the corporate tax rate is the only significant tax that US corporations pay, whereas most other countries have both corporate income taxes and VAT taxes, often paid at each transactional stage of production.”
Oh dear oh dear. This pretty much disqualifies you from writing about taxes.
VAT is not a tax upon corporations. It is a consumption tax, akin to a sales tax. You wouldn’t go around calling a sales tax tax on corporations so you shouldn’t with a VAT.
And of course it’s collected at each transaction: that’s the very thing that makes it a VAT.
And your chart of taxes paid is even worse. For a start the Apple numbers are comparing tax paid in a year with earnings in that year, Yet corporate income tax is paid in arrears. The $3.9 billion number refers to tax calculated on the revious year’s profits.
Then I think there’s another problem. You’re comparing taxes paid to the US govt with worldwide earnings. But worldwide companies have to pay tax in other countries too.
Seriously, this sort of inadequay with numbers is just not cool.
Why have a corporate income tax at all? Why not have coporations pay user fees for governmnet services they use – or a corporate VAT? A company that loses money pays no income taxes. Why should a profitable one subsidize it. Wouldn’t prices then be more reflective of the services consumed?
Mcwop
i guess i can’t see where a profitable company subsidizes an unprofitable one. I think you have been listening to the anti-tax religion too long.
we pay taxes because we need government services.
we pay taxes out of our income because that is the easiest and fairest way to do it.
we could just as easily collect ALL taxes from corporations and let them pass the costs on to their customers.
but of course we’d only tax those that made money.
as a way of punishing them for success, you know.
Anon, my point is that a money losing company still uses roads, water, etc… Why don’t they just pay for what they use. I am not opposed to taxes, nor am I anti-tax. I just want taxes to be efficient, and the burden shared by all.
I actually think paying taxes out of income at the coproate level to be inefficient, unfair, and causes assets to be misallocated.
Tim:
I do not see graphs; but, I do see Bar Charts on NerdWallet. What is inadequay or did you mean inadequacy?
Can you be specific so I can answer you? Didn’t we have a conversation on this a while back?