“Corporations Are People”: How Everyone Else Pays for Big Business’s Tax Breaks
Some politicians might believe that “corporations are people,” as former Gov. Mitt Romney declared last year.
At tax time, however, corporations enjoy better treatment than ordinary folks. While millions of individual Americans file last-minute income tax returns this month, some major corporations won’t pay a dime despite reaping record profits.
From 2008 to 2010, the 280 most profitable U.S. corporations sheltered half of their profits from taxes, thanks to tax subsidies totaling nearly $224 billion, according to a 2011 analysis by Citizens for Tax Justice. A dozen large companies, including Exxon-Mobil, Boeing, and General Electric, reaped $175 billion in profits, but their combined tax rate was negative 1.4 percent, thanks to $64 billion in subsidies from oil depletion allowances, write-offs from overseas profits, and other loopholes, according to the study.
These subsidies didn’t just come about by accident—at least 30 Fortune 500 firms pay their lobbyists more than they pay in taxes. Most small businesses can’t afford lobbyists, so it’s no surprise that the benefits of tax loopholes flow mainly to Wall Street, not Main Street.
Thanks to these loopholes, probably no major company pays the full federal corporate tax rate of 35 percent. The highest three-year average effective rate paid by any of the 12 large corporations in the Citizens for Tax Justice study was 14.2 percent—less than many middle class families.
That’s the kind of sweetheart deal most taxpayers—and most small businesses—can only dream about. We do, however, get to pick up the tab for these costly tax breaks. For starters, when corporations shirk billions of dollars in federal taxes, middle class taxpayers must bear more of the cost of national defense, healthcare, and other necessary programs.
Then there is the effect on state and local services, most notably education.
Most states mirror federal tax loopholes, and many states also provide tax subsidies for companies just to locate within their borders. Total state and local tax subsidies to business add up to about $70 billion a year. That windfall for big business comes at the expense of students. Over the past three years local school districts have cut 238,000 education jobs, which means more students crammed into larger classes and fewer opportunities for extra tutoring or after-school programs. Middle class families have also had to foot a larger share of the bill for higher education, as total state funding has declined 3.8 percent over the last five years.
Small businesses also pay a price for corporate handouts. Not only is the tax burden shifted to companies that can’t afford to game the system, but small businesses rely on public education to train skilled workers and teach them how to think critically. When Spencer Organ Company, Inc. was founded in 1995, many of the people who applied for jobs not only had basic reading and math skills—they also had been exposed to music education and had learned to use tools in shop classes, knowledge that is useful in the organ restoration business. Today, after years of curriculum cutbacks, most students have not had those opportunities, a shift that translates to higher training costs for this small business.
Our nation built the most prosperous economy in history during the 20th century, and public education was a foundation of that success. We all have a responsibility to provide similar opportunities for future generations to succeed, and our biggest corporations must do their fair share. After all, the same people who own stock in these companies also have a stake in America’s future.
By: Joseph Rotella and Dennis Van Roekel, U. S. News and World Report, April 5, 2012
“Territorial Tax System”: CEO’s Of Tax Dodging Corporations Push Congress To Cut Corporate Tax Rates
Several corporate CEOs representing the Business Roundtable, a lobbying group, were on Capitol Hill today to unveil a set of measures that they claim will boost the economy. Not surprisingly, some of the high-profile items are a cut in the corporate tax rateand shifting to what’s known as a territorial tax system:
Fresh out of a meeting with members of the Blue Dog Coalition, dozens of CEOs in town for a series of Business Roundtable policy and lobbying meetings today unveiled proposals to boost the economy.
The plan, billed as “Taking Action for America,” calls for a balanced federal budget, a reform of federal regulations and a lower corporate tax rate based on a territorial tax system, among others.
A territorial system, as well as cutting the corporate tax rate without raising more corporate tax revenue, are both misguided proposals. But the interesting thing about these particular CEOs pushing this particular policy prescription is that several of them already run corporations that pay little to nothing in taxes.
For instance, Boeing CEO Jim McNerny is part of the group calling for corporate tax cuts, despite the fact that his company has a negative federal tax rate for the last decade. Only twice in the last ten years has Boeing had federal tax liability in a given year, and between 2008 and 2010, the company made $9 billion in profits without paying any federal corporate income tax.
Andrew Liveris, president and CEO of the Dow Chemical, also joined the lobbying party, even though his company received nearly half a billion dollars in tax refunds in 2010. Proctor & Gamble’s CEO also participated, while heading a company very fond of exploiting loopholes to avoid taxes.
Corporate tax rates are already at a 40 year low. As billionaire investor Warren Buffett explained, “it is a myth that American corporations are paying 35 percent or anything like it…Corporate taxes are not strangling American competitiveness.” Yet corporate CEOs whose companies already pay literally nothing think driving rates down further is the answer to boosting the economy.
By: Pat Garofalo, Think Progress, March 7, 2012
“Primary Pander Mode”: Severely Conservative Mitt To Rollout New Tax Plan
What do Republican politicians do when they need to pick it up a step? You’ve got it: they propose more tax cuts.
So it’s no great surprise that Mitt Romney is signaling that he’s coming out with a new, “bold” tax proposal to coincide with his stretch drive towards primaries next week in Michigan and Arizona, not to mention the upcoming Super Tuesday (March 6).
The chosen herald for this news appears to be that intrepid supply-sider, Larry Kudlow of National Review, who reports, with barely restrained excitement, that Mitt’s new tax cuts will be “across-the-board with supply-side incentives from rate reduction, and that it will help small-business owners as well as everyone else.”
You may wonder why Romney didn’t find space for this stuff in his previously released 159-page economic plan. Looking at that beast for the first time in a while, it already includes making the Bush tax cuts permanent; abolishing estate taxes; a partial abolition of taxes on interest, dividends and capital gains; and lower corporate tax rates. Ah, but there it is, the placeholder for new goodies: “a conservative overhaul of the tax system over the long term that includes lower, flatter rates on a broader base.”
Now lots of folks in both parties think it might be possible to have lower income tax rates if the lost revenues are offset by aggressive elimination of tax expenditures, from fossil fuel subsidies to the mortgage interest deduction, all of them zealously defended by some powerful lobby. It will be interesting to see if Romney moves in that direction, or instead (as one might guess from Kudlow’s enthusiasm) relies on the old voodoo magic of supply-side economics, and pretends lower rates will pay for themselves. Since he’s in full primary pander mode, it’s unlikely he’ll propose anything a signfiicant number of GOP primary voters will find objectionable.
By: Ed Kilgore, Washington Monthly Political Animal, February 21, 2012
Why Mitt Romney’s Tax Returns Undermine The GOP’s Investment Tax Argument
According to Republican gospel, taxes on investment must always be low, or else investors will simply sit on their money, refusing to do the very thing that could earn them more money. However, as David Abromowitz laid out in Bloobmerg View today, Mitt Romney’s tax returns undermine this argument.
After all, Romney made his fortune via investments made by Bain Capital, the private equity firm that he ran. And Bain’s investments between 1984 and 1999 “occurred when capital-gains rates were much higher than they are today. Yet Bain consistently attracted massive amounts of private capital, and thrived”:
Bain’s haul is further evidence that fair tax rates don’t hold back profit-seeking capitalists, at least until those rates reach a point that no one is proposing. From 1984 until 1999, the top rates on capital gains — the profit from investments as opposed to compensation for work — were often at 28 percent, and never lower than 20 percent. Indeed, in 1987, under President Ronald Reagan, the 20 percent rate rose to 28 percent — a 40 percent increase in potential taxation of Bain investment profit. (Yes, Reagan did raise taxes, even on capital.)
An analysis by the Wall Street Journal of 77 Bain deals in that time period showed that the firm “produced about $2.5 billion in gains for its investors,” on about $1.1 billion invested. Clearly, even with capital-gains rates almost double those today, fund managers such as Romney didn’t lack investors.
As billionaire investor Warren Buffett put it, “I have worked with investors for 60 years and I have yet to see anyone — not even when capital-gains rates were 39.9 percent in 1976-77 — shy away from a sensible investment because of the tax rate on the potential gain.” It’s worth remembering that it was conservative icon Ronald Reagan who completely equalized the tax treatment of investment and wage income, rejecting the argument that a lower capital gains rate was necessary to incentivize investment.
As Nobel Prize winning economist Paul Krugman has noted, the case for a lower capital gains tax is dubious at best. “Nothing in our history or experience says that unearned income has to be taxed this lightly,” he wrote.
By: Pat Garofalo, Think Progress, February 9, 2012
What John Boehner Considers “Almost Un-American”
Over the weekend, House Speaker John Boehner (R-Ohio) described President Obama’s State of the Union address, which he had not heard, as “pathetic.” Today, Boehner pushed the rhetorical envelope a little further.
House Speaker John Boehner Tuesday forcefully denounced the Democrats’ campaign theme that they are for the middle class and Republicans are for the wealthy — saying the policies the president is running on are “almost un-American.”
“This is a president who said I’m not going to be a divider, I’m going to be a uniter, and running on the policies of division and envy is — to me it’s almost un-American,” said Boehner.
Even for Boehner, this kind of rhetoric is cheap and inappropriate.
At a certain level, it’s tempting to think the Speaker doesn’t even believe his own nonsense. What is it, exactly, that Boehner finds so offensive about President Obama’s message? The notion of a Democratic president championing the interests of the middle class isn’t exactly unusual, neither is the prospect of asking the very wealthy to pay a little more to help guarantee opportunities for all.
Indeed, there’s nothing in the White House’s agenda that wouldn’t have generated significant support from Democrats and moderate Republicans for the better part of the 20th century. Obama’s economic vision is, at a fundamental level, about as mainstream as you can get.
It makes sense for Boehner to attack this, to the extent that he sees it as his job to reflexively oppose everything the president is for. But officials, especially those in key positions of authority, really ought to avoid words like “un-American.” Just because the House elected an oft-confused Speaker, who lacks a cursory understanding of public policy and history, is no excuse for American leaders questioning other American leaders’ patriotism.
I’m reminded of a recent piece from Tim Dickinson:
The nation is still recovering from a crushing recession that sent unemployment hovering above nine percent for two straight years. The president, mindful of soaring deficits, is pushing bold action to shore up the nation’s balance sheet. Cloaking himself in the language of class warfare, he calls on a hostile Congress to end wasteful tax breaks for the rich. “We’re going to close the unproductive tax loopholes that allow some of the truly wealthy to avoid paying their fair share,” he thunders to a crowd in Georgia. Such tax loopholes, he adds, “sometimes made it possible for millionaires to pay nothing, while a bus driver was paying 10 percent of his salary — and that’s crazy.”
Preacherlike, the president draws the crowd into a call-and-response. “Do you think the millionaire ought to pay more in taxes than the bus driver,” he demands, “or less?”
The crowd, sounding every bit like the protesters from Occupy Wall Street, roars back: “MORE!”
The year was 1985. The president was Ronald Wilson Reagan.
Today’s Republican Party may revere Reagan as the patron saint of low taxation. But the party of Reagan — which understood that higher taxes on the rich are sometimes required to cure ruinous deficits — is dead and gone. Instead, the modern GOP has undergone a radical transformation, reorganizing itself around a grotesque proposition: that the wealthy should grow wealthier still, whatever the consequences for the rest of us.
I suppose the follow-up question for Boehner is, was Reagan “almost un-American,” too? Were the lawmakers from both parties who approved tax reform in the mid-80s a bunch of socialist sell-outs?
By: Steve Benen, Contributing Writer, Washington Monthly Political Animal, January 24, 2012
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