Corporate taxes in the United States are supposedly the highest in the world, nominally at 35 percent, which should be a major financial disincentive to economic growth and corporate investment in this country. However, no major corporation pays its federal obligation at this rate, finding ways to lower its taxes, or avoid them completely. In this day and age, only an unsophisticated fool would expect corporations to remit taxes to the government at the nominal rate.
In fact, there is an entire industry employing lawyers and accountants dedicated to tax avoidance both for corporations and individuals. But most large corporations have their own in-house strategists working to save their companies money expected to go for taxes. As an example, General Electric paid corporate taxes to federal, state, local, and foreign governments combined that totaled 17.9 percent of its cumulative earnings over the last five years, and not just the federal government alone with its rate of 35 percent (http://goo.gl/ZH2NN). Similarly, FedEx paid 20.1 percent, Amazon 6.6 percent, and Ford 4.2 percent, showing that the effective corporate tax rate is considerably lower than the supposed rate of 35 percent.
Though corporations and corporate lobbyists complain about the high rate of 35 percent making the US economy less competitive, their criticism is meaningless, since corporations do not pay that rate. In fact, the effective rate paid make US corporate taxes for many companies among the lowest in the developed world, particularly for those firms who earn much of their income abroad, like tech and pharmaceutical companies. Because of pressure from lobbyists and special interests, Congress has permitted corporate taxes to decrease as a source of federal revenue, from about 3.2% of GDP in 1970 to half of that in 2012. (Individual income taxes were equal to 7.3 percent of GDP in 2012.)
The recent move by Apple to borrow $17 billion to pay for stockholder dividends and a stock buyback, even though Apple had accumulated nearly $150 billion in cash and marketable securities, highlighted one of the problems with corporate taxes. Apple appears to do whatever it can to avoid paying the federal government taxes. Most of Apple’s cash and cash equivalents were earned abroad and have been kept abroad to dodge American taxes. So rather than repatriating their cash to the US and paying taxes on their profits, they borrowed the money through corporate bonds at incredibly low interest rates to raise dividends and buy back stock.
Deferral of income earned abroad saved American corporations $41 billion two years ago, accelerated depreciation of machinery and equipment $76 billion. JP Morgan Chase analysts estimate that profits of American corporations held offshore are currently close to $2 trillion.
Nominal corporate tax rates could be lowered without loss of revenue if a number of loopholes provided to specific industries or companies were closed. Fossil fuel companies are among the major beneficiaries of tax subsidies and loopholes, but numerous corporations pay lower taxes because Congress provided them with tax breaks.
While there has been much talk in Washington about rewriting the tax codes for both corporations and individuals to make them more equitable, this may turn out to be another pipedream. The Republicans want to reduce total revenues as part of tax restructuring, while the Democrats want to increase revenues to lower the budget deficits and national debt and perhaps provide a short term stimulus with heightened government spending. When lobbyists and special interests are added to the mix with their own demands, putting pressure on Senators and members of Congress to maintain or increase loopholes and tax breaks, the chances of redoing the tax codes in a rational manner are slim to none. It’s all part of the dysfunction in Washington that makes passage of
important legislation so difficult to accomplish.
Resurrecting Democracy
www.robertlevinebooks.com
Political junkie, Vietnam vet, neurologist- three books on aging and dementia. Book on health care reform in 2009- Shock Therapy for the American Health Care System. Book on the need for a centrist third party- Resurrecting Democracy- A Citizen’s Call for a Centrist Third Party published in 2011. Aging Wisely, published in August 2014 by Rowman and Littlefield. Latest book- The Uninformed Voter published May 2020