Last summer, President Obama said in L.A. that, “My attitude is I don’t care if it’s legal — it’s wrong. And my attitude is, is that nobody begrudges our companies from turning a profit — we want them to be profitable. And in a global economy, there’s nothing wrong with companies expanding to foreign markets. But you don’t get to pick the tax rate you pay.”
Corporate taxes have been somewhat of a hot topic, as the majority of us members of the middle and upper-middle class are up to our necks in taxes (excuse the dramatic sentiment) and corporations use tactics such as inversion and transfers to get large breaks on tax bills. It makes some feel as though the little guy is being hounded while Goliath is receiving breaks left and right.
A report by the Tax Foundation confirmed the idea that U.S. corporations are subject to the highest income tax rate in the world. When you combine the 35% federal rate to the average state levied rate of 4.1%, the combined rate of 39.1% is well above the OECD simple average of 25%.
In spite of this, as many people are already aware, there are a lot of corporations that are supposed to pay a top rate, but don’t actually pay anywhere close to it. Some of the most profitable companies in the country pay a lower tax rate than we would ever imagine.
Citizens for Tax Justice (CTJ) is a “public interest research and advocacy organization focusing on federal, state, and local tax policies and their impact upon our nation.” Although a bit left-leaning, the organization offers some valuable insight on tax topics. CTJ recently published a report on corporate tax rates across fortune 500 companies. It found that some companies paid less than zero federal income taxes during 2008 to 2012, meaning they paid less than most middle class families.
Corporations and the 2008 through 2012 rate
- Pepco Holdings (NYSE: POM): –33.0 percent
- PG&E Corp. (NYSE: PCG): –16.7 percent
- NiSource (NYSE: NI): –13.6 percent
- Wisconsin Energy (NYSE: WEC): –13.5 percent
- General Electric (NYSE: GE): –11.1 percent
- CenterPoint Energy (NYSE: CNP): –8.5 percent
- Integrys Energy Group (NYSE: TEG): –8.2 percent
- Atmos Energy (NYSE: ATO): –7.7 percent
- Tenet Healthcare (NYSE: THC): –6.0 percent
- American Electric Power (NYSE: AEP): –5.8 percent
- Ryder System (NYSE: R): –4.7 percent
- Con-way (NYSE: CNW): –3.5 percent
- Duke Energy (NYSE: DUK): –3.3 percent
- Priceline.com (NASDAQ: PCLN): –3.0 percent
- FirstEnergy (NYSE: FE): –3.0 percent
- Apache (NYSE: APA): –2.4 percent
- Interpublic Group (NYSE: IPG): –2.1 percent
- Verizon Communications (NYSE: VZ): –1.8 percent
- NextEra Energy (NYSE: NEE): –1.6 percent
- Consolidated Edison (NYSE: ED): –1.1 percent
- CMS Energy (NYSE: CMS): –1.1 percent
- Boeing (NYSE: BA): –1.0 percent
- Northeast Utilities (NYSE: NU): –0.7 percent
- Corning (NYSE: GLW): –0.3 percent
- Paccar (NASDAQ: PCAR): –0.1 percent
The Huffington Post (you can view the article here) contacted all of the companies on the list. Some of the corporations, like Verizon and American Electric Power, said that the report was misleading. The others had various responses. But all the responses from the companies had these common underlying themes:
Blame the Law
Many of the companies said they simply are paying what is required by law. This begs the long-debated question: should we have an issue with the corporations that use tax loopholes, the tax code that allows such tax breaks, or both?
Federal Taxes Are Not the Only Taxes It Pays
Some of the corporations brought up the taxes they face like state, local, environmental, and energy taxes that were not included in the CTJ report. Does this make the analysis bias or unfair?
Many of the businesses on the list also stated that they were deferring taxes during those years, opting for a potential lower rate in the future. Some talked about changes in the tax code that occurred during the great recession, like the changes in depreciation allowances.
What do you think about corporate tax loopholes?