Last year, the watchdog group Citizens for Tax Justice put out a paper showing that 30 Fortune 500 companies had a negative tax rate for the cumulative years 2008-2010. The corporations singled out by the report submitted a number of excuses to explain away what they claimed was an anomaly, owing to things like short-term tax breaks from the stimulus package. “They said it was aberrational. ‘Next year we’ll pay out a lot,’ they said,” according to CTJ’s Bob McIntyre. “So we thought it would be a good idea to look at what happened last year, in 2011,” to test these claims.
That report is now available, and it shows that, if you include the tax year of 2011, 26 of these 30 corporations still paid a negative tax rate overall. That’s four years of paying no corporate tax, and instead receiving back billions in subsidies. According to the report, if these 30 companies paid the nominal tax rate of 35% over the four years in this analysis, they would have paid $78.3 billion in federal taxes. “Put another way, over the four years, the 30 companies received more than $78 billion in total tax subsidies,” according to CTJ. And of course, this is merely 30 of the nation’s largest corporations.
The study shows that Pepco Holdings, General Electric (the company of Obama Administration Jobs and Competitiveness Council chair Jeffrey Immelt) and Pacific Gas & Electric are the worst offenders. GE, for example, has a -18.9% tax rate for the tax years of 2008 to 2011. While some apologists like David Brooks have claimed that the tax breaks mostly come from GE’s production of wind turbines, McIntrye of CTJ says that they actually come from two factors. “GE gets most of its tax breaks from its leasing subsidiary GE Capital,” McIntyre said. “Leasing always generates more tax breaks than they can use. So they use them on the rest of their operations.”
Similarly, a tax break from the mid-1990s exempts GE from taxation on foreign lending. That kind of lending is typically taxed by the company’s country of origin, so essentially they pay no tax on that lending. And yet GE deducts the interest on that lending against their US taxable income. “So there’s an exemption at the one end, and a deduction at the other,” said McIntyre.
Only four of the thirty companies turned to a positive tax rate over these four years, with the 2011 data included. And the company with the highest tax rate, DuPont, still paid on average only 10.9% tax over that four-year period, barely 1/3 of the nominal tax rate. No other country paid more than 3.8%. The overall effective tax rate for these four companies over the four-year period was -3.1%.
This cannot be explained merely by a set of tax breaks put in as a kind of stimulus to respond to the Great Recession. While some companies have benefited from various corporate tax breaks adopted in the past few years, institutional tax policy tends to benefit these same corporations regardless of the economic picture. The current corporate tax collection over the last three fiscal years has fallen to 1.2% of GDP, according to the Treasury Department. Says the CTJ report, “That’s lower than at any time since the 1940s except for one single year during President Reagan’s first term,” and it stands in contrast to an average rate of about 4% of GDP in the 1960s.
Corporate tax breaks are almost always seen by a large sector of Washington as beneficial to economic growth. Tax deductions and breaks are handed out like candy, by both parties. And it’s almost always in the guide of helping “small businesses.” In reality, the “small business” tax reforms that House Majority Leader Eric Cantor proposed earlier this year would actually impact 99.7% of all American businesses. And the President and Democratic leaders like to constantly tout all the small business tax breaks they have passed to “jump-start the economy” in the past several years, the most recent being the deregulatory JOBS Act.
This is despite the fact that, as McIntyre says, “Corporate tax breaks are rather ineffective at achieving economic goals.” McIntyre added that “If this kind of (corporate tax break-bestowing) policy worked, we’d have 10% economic growth instead of 3%.”
In McIntyre’s opinion, the solutions are simple: close the loopholes, which he says has actually been effective in the past for short periods of time. He also expressed support for an alternative minimum tax for corporations, which was effective after the 1986 tax reform act and has been floated more recently. He says the time is ripe for cleaning up the corporate tax code and its litany of loopholes. “Every so often Congress wakes up, jupiter and mars align, and we close the loopholes,” said McIntyre. “But then a new group of people come to Washington, and everyone forgets. It’s a Sisyphean role I’ve chosen for myself.”
The full report can be found here.