The Rapidly Shrinking Corporate Income Tax

The Nation has an article that details half a dozen accounting tricks that corporations use to avoid paying federal income taxes. Those techniques are so successful, and the forms of corporate welfare in the tax code so generous, that corporations are paying less in taxes now than they have in the last four decades.

As American families rush to complete their annual tax returns, many will have paid more in federal income taxes than some of America’s largest and most profitable corporations. AT&T, Boeing, Citigroup, Duke Energy and Ford collectively reported more than $20 billion of US pre-tax income last year, yet none of them paid a dime in federal income taxes. Instead, they claimed refunds of more than $1.3 billion from the IRS.

These corporations are not alone in turning tax dodging into a competitive sport. Last year, US corporations paid an effective tax rate of just 12.1 percent, the lowest level in the last forty years, according to the Congressional Budget Office. Sixty years ago, when Republican President Dwight Eisenhower lived in the White House, corporations paid 32 percent of federal government’s tax receipts; last year they paid 9 percent.

Here’s one example:

In each of the past nine years, Boeing has reported at least $1 billion in pre-tax profits, yet in only one did it pay any US corporate income taxes. In fact, the aerospace giant got so much money in tax subsidies that it had an effective tax rate of -7.8 percent during this period.

One of the main reasons Boeing has avoided the taxman is that the rest of us subsidize their research and development spending. Last year this amounted to $137 million. Congress first passed the research and experimentation tax credit during the 1981 recession, intending to provide a temporary boost to America’s sagging economy. Though it has expired for short periods over the years, it has been renewed thirteen times, and Congress is presently considering making the tax credit permanent.

Government investment in basic research and development can be valuable, but the way the current tax credit is structured, much of the support goes to large well-resourced high-tech firms like Boeing that would have conducted the research anyway as a part of maintaining a vibrant business.

So taxpayers foot the bill for Boeing’s research on new defense technology, then Boeing makes all the profits on it after taxpayers pay again for the planes and other weapons that are developed because of that research. This is a perfect example of corporate welfare, which dwarfs actual welfare for individuals.

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What Are Your Thoughts?leave a comment
  • “Corporate welfare”? Sounds like “a good old-fashioned ripoff” to me.

  • Doesn’t this amount to a massive subsidy of corporations? So, all those Very Serious free-market proponents are wrong!?!

  • The sequester is such a load of bullshit. I used to say “just cancel the F-35 and you’ll save the same amount of money” but now, maybe, we’d get the same effect if we made Boeing, Caterpillar, Apple, Exxon, Chevron, et al, and perhaps Romney and Warren Buffet pay their fair share of tax. Not “more taxes” just “some”!

  • Artor

    But how can this be?!? I thought Obama was taxing American businesses out of existence! /snark

  • slc1

    I’m sure that MH will be along to inform us that this is actually a good thing.

  • D. C. Sessions

    I’ve changed my mind recently on the VAT (hold on! This is germane!)

    In general I object to sales taxes because they’re so regressive, and have opposed the proposals to institute one in the USA. However …

    The old saw is correct in that corporations don’t pay taxes, they just collect them. And the corporate income tax has gotten so rotten and ineffective now that for all practical purposes we might as well not bother — the Boeing case being a good example. So by all means replace the corporate income tax with a straight VAT and let the tax be priced into goods sold or exported. Let our statutory corporate tax rate go to zero (I confess that this will put millions of tax mechanics out of work, but there are always openings for crooked bookkeepers.)

    It’ll help out the US trade competitiveness and seriously increase net tax collections while removing market distortions. Tell the Republicans that it’s regressive and they’ll so excited that they may not notice that it’s actually raising revenue.

  • unbound

    While D.C. Sessions idea may very well work, the core of the issue is that we need to not have our government represented by the corporations (pretty much all the Republicans at this time and a good chunk of the Democrats).

    You can work on a different kind of tax, but, really, all congress has to do is close the loopholes (something that should be an annual exercise). Of course, for that to happen, see my first sentence above…

  • close the loopholes (something that should be an annual exercise)

    “Loophole closing day” would be a good day. Everyone gets the day off work except lawmakers.

  • Reginald Selkirk

    “Corporations are people, my friend.” So they should pay income taxes, just like all the persons I know.