Home > Plutonomy > United States of corporate tax welfare

United States of corporate tax welfare

from David Ruccio

In the United States, we don’t tax corporate profits. We give corporations lots of ways of not paying taxes. The result is the effective tax rate on corporations is less—in many cases, much less—than the much-ballyhooed official corporate tax rate of 35 percent.

The Citizens for Tax Justice has just issued a new report, “Corporate Taxpayers & Corporate Tax Dodgers, 2008-2010″ [pdf]. Their conclusion:

Over the three years covered by our study, the average effective tax rate for all 280 companies was only 18.5 percent. For the past two years, 2009 and 2010, the effective tax rate for all 280 companies averaged only 17.3 percent, less than half of the statutory 35 percent rate.

Of the 280 companies they studied, only 71—or 25 percent of the total—paid effective three-year tax rates of more than 30 percent (their average effective tax rate was 32.3 percent). An almost equal number of companies, 67, paid effective three-year tax rates of less than 10 percent (their average effective tax rate was zero). Another 30 companies paid less than zero percent over the three years (their effective tax rate averaged –6.7 percent).

What kinds of welfare do U.S. corporations receive? They benefit from:

  • “accelerated depreciation” (tax breaks that allow companies to write off their capital investments considerably faster than the assets actually wear out),
  • “stock options” (companies can take a tax deduction for the difference between what executives pay for the stock they receive as part of their pay and what it’s actually worth when they exercise their stock options),
  • “industry-specific tax breaks” (i.e., tax subsidies to companies that engage in certain activities. such as: research; drilling for oil and gas; providing alternatives to oil and gas; making video games; ethanol production; moving operations offshore; not moving operations offshore; maintaining railroad tracks; building NASCAR race tracks; making movies; and a wide variety of activities that special interests have persuaded Congress need to be subsidized through the tax code), and
  • “offshore tax sheltering” (these typically involve various artificial transactions between U.S. corporations and their foreign subsidiaries, in which revenues are shifted to low- or no-tax jurisdictions, while deductions are created in the United States).

Here is a summary of the effective tax rates of the 280 corporations by industry:

Why is this important? It’s important for two reasons: First, corporate lobbyists are demanding even more tax breaks, including a tax holiday on foreign earnings, in order to maintain and improve their “competitiveness.” Second, much of the surplus in the United States is captured in the form of corporate profits (over the three years, the 280 companies in their survey reported total pretax U.S. profits of almost $1.4 trillion.) Corporate profit taxes are the only way the rest of society has some say in what is done with those profits. In the end, when effective corporate profit taxes are low, the tax burden is shifted to individuals and households and government programs for entities other than corporations are undermined.

Because of the welfare provisions in the U.S. tax code, the corporations that are run by the 1 percent gain— both before and after taxes—at the expense of the 99 percent who are forced to have the freedom to work for those corporations. On top of this, they are threatened with higher taxes and less generous social programs.

As they become aware of the nature and extent of this program of corporate tax welfare, the participants in  Occupy Wall Street may turn it into Occupy All Streets.

  1. Bruce E. Woych
    November 4, 2011 at 1:49 pm

    Of course the “off-shore” occult money doesn’t show up at all in the circle of things and is often “blamed” on the tax “burden” chasing finance and revenue off shore. And of course every bank robber in the world has a similar explanation and every crime was a result or rational response to some external pressure. The truth is that the evasion is intentional and deliberate and only impacts more on the tax burdens and survival of upfront and smaller legitimate enterprises. Great Job here David, any chance you can shed some light on the offshore havens and the current impact upon getting the honest economy back in shape?
    Here’s some “shadow” evaluations; I can only imagine what the “offshore” impact adds to the crisis and the true cost to a full spectrum transparent systemic failure.

    Shadow Banking Outperforms its Pre-Crisis Levels
    By: EW News Desk Team Date: 4 November 2011

    04 November 2011 (direct quote)
    “In a time when the banking and finance industry is fighting to maintain profitability, the shadow banking system has managed to surpass its pre-crisis level, growing bigger than it was before the financial crisis.

    A report by the Financial Stability Board has shown 11 largest economies with significant shadow banking found the sector, which previously peaked at $50,000 billion in 2007, dropped to $47,000 billion in 2008 but is now back up to $51,000 billion. When the rest of the eurozone is included the sector is estimated at $60,000 billion. It now constitutes more than a quarter of the entire financial system and is about half the size of traditional banks.”

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