Economic Find: Corporate Tax Break

An often-cited, but entirely incorrect statistic, is that the corporate tax rate is 35%.  At one time, corporate income tax used to raise a decent amount of revenue, but that is no more.

Last year, GE paid no taxes on $14.2 billion in profits and received $3.2 billion in tax credits.  Furthermore, CEO Jeffrey Immelt doubled his compensation while asking 15,000 workers for major concessions. (Obama appointed Immelt to his advisory commission on job creation.)  Furthermore, the Carnival Corporation enjoys the benefits of the US Coast Guard, customs officers, and the roads and bridges where they dock, but thanks to some nifty tax loopholes, their current tax rate is 1.1 percent.

The average tax rate paid by five hundred big countries on the S&P’s index is indeed 32.8%, so pretty close to that 35%.  But, according to the New York Times, 115 of those companies paid a total corporate tax rate of less than 20 percent over the last five years; thirty-nine paid a rate that was less than 10% and the chart below shows 10 companies that paid less than 2.5%.

How is it that so many profitable companies pay so little in taxes?  There are a few explanations, the least unsavory of which is that, according to the NYT, “Companies that lost large amounts of money in previous years can subtract these subsequent losses from their initial profits and avoid taxes until they’re turning a consistent profit.”  Second, corporations can avoid taxes by making tax-deductible (and often unnecessary) investments in equipment.  The third reason is that some companies, especially GE, have become really really good at finding tax loopholes.

Policymakers on both sides want to revamp the tax code.  But considering that these same corporations spend so much on lobbyists (and now, thanks to Citizens United, can spend money out of corporate coffers to influence political campaigns—see Economic Find: Paying to Politically Play), it is going to be a long and difficult fight.

Corporate Tax Rates

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Created by Member Economists Sue Holmberg and Emily Kawano

 

Source:
Business Insider. http://www.businessinsider.com/16-more-profitable-companies-that-pay-almost-nothing-in-taxes-2011-3#

Leonhardt, David. “The Paradox of Corporate Taxes.” New York Times. http://www.nytimes.com/2011/02/02/business/economy/02leonhardt.html