66% Of American Corporations Pay Zero Federal Income Tax.
And that really irritates me. Here are the rest of us, from the the family of four having trouble paying for college education to your neighbor just trying to make ends meet, who have to pick up the slack. Is it any wonder that when you combine the tax breaks for the richest Americans with the lack of income tax from corporations, that our country’s infrastructure is headed down the tubes?
Nearly two-thirds of U.S. companies and 68% of foreign corporations do not pay federal income taxes, according to a congressional report released Tuesday.
The Government Accountability Office (GAO) examined samples of corporate tax returns filed between 1998 and 2005. In that time period, an annual average of 1.3 million U.S. companies and 39,000 foreign companies doing business in the United States paid no income taxes - despite having a combined $2.5 trillion in revenue.
The article says the method for the various companies (who remain unnamed) to escape paying income taxes varies - some of them report $0 income before deducting their expenses and others find deductions equaling more than their reported income. Some of the companies are small businesses, but they say they still end up paying taxes because the income gets moved onto personal tax returns (kind of like individual LLC companies).
“The tax system that allows this wholesale tax avoidance is an embarrassment and unfair to hardworking Americans who pay their fair share of taxes,” Dorgan said in a statement.
I could not agree more, and something needs to be done asap. It is not fair to individual tax payers who have to worry about being audited or getting trapped by the AMT. If I somehow found enough deductions to escape paying income taxes, I am sure that I would have a visit from the government. It’s just not right.
Share with others: SU | Reddit | Digg | PFBuzz | Del.icio.us | Tip'd
You might also like:
Jeff | Aug 13, 2008 | Reply
Rather then being upset with this “problem” why not just figure out how to play the system?
Miranda | Aug 13, 2008 | Reply
As an LLC, I have a pass through. However, I pay individual income taxes to not a small amount. So I can see that side of it.
But, on the other hand, there are plenty of corporations that are not small businesses that are getting huge tax breaks and subsidies. That’s right. On top of enjoying tax breaks, big corporations (Big Oil and Big Ag companies come to mind) get taxpayer money on top of their rather large profits.
What with preferential tax treatment for those that need it most, and sending a great deal of our taxpayer dollars overseas for military stuff (and not just the Iraq War — the amount of funding we give to other countries’ militaries is ridiculous), it’s no surprise that our health care is #37 in the world and our infrastructure is in dire need of upgrades. Apparently our priorities as a country are somewhere else.
NCN | Aug 13, 2008 | Reply
While it bums me out that individuals have to pay so much in taxes… I don’t think that raising the corporate taxes is the answer! Personally, I don’t think corporations should pay ANY taxes… and I think we should move to a national salex tax or a fair/flat tax. Remember, corporations don’t ‘have’ money… shareholders do. So, if you tax a corporation, you tax the people. Plus, even if you could figure out a way to tax corporations, they would just pass these taxes THROUGH to customers.
NCN
david | Aug 13, 2008 | Reply
Playing the system is not the solution Jeff - if no one pays taxes, we all lose. That’s how the system keeps working.
Miranda | Aug 13, 2008 | Reply
Ooops. I meant “preferential tax treatment for those that need it least at the expense of those that need it most.” My ranting got in the way of my articulation…
david | Aug 13, 2008 | Reply
NCN - Not all corporations are public companies with shareholders!
Miranda - I am afraid our priorities have been elsewhere for, oh, 8 years now.
daveG | Aug 13, 2008 | Reply
1) S Corporations do not by definition pay any income tax. Similar to an LLC, the tax liability gets passed to their shareholders. Roughly 50% of all corporations are S Corps.
2) The tax rate on US “C” corporations is quite high- 35-40%. Most of Europe taxes their corporations at less than 20%.
david | Aug 13, 2008 | Reply
Sure, the tax rate may be set high, but that doesn’t mean they pay any. As the study says, 2/3 of ALL corporations do not pay taxes. So the rate become irrelevant when you don’t have to pay anything!
Ron@TheWisdomJournal | Aug 13, 2008 | Reply
Corporations don’t pay taxes. Their workers pay taxes. Their customers pay taxes. Any tax increase on a corporation would be passed along to consumers in the form of higher prices. Either way, you and I are stuck.
Besides, the top 5 percent of income earners today (many of those corporations via sub-S or LLC) already pay 60 percent of all Federal taxes collected despite having earned only 19 percent of the income. Before the “tax cuts” under the current administration, the top 5 percent only paid 57 percent of all taxes.
A better number might be to see how much was paid by “C” corporations and compare that to how much they invested back into their respective companies, paid in dividends, or paid in salaries that were then taxed.
david | Aug 13, 2008 | Reply
Their customers pay the corp taxes in the price, but if the corporation does not have to pass that on to the govt, who loses?
Andys | Aug 13, 2008 | Reply
Just goes to show, those with the best liars (I mean lawyers) and accoutants pay the least taxes. Our capitalist system is designed for innovation. Unfortunately the side effect of that is that it also promotes innovation in avoiding taxes…
However, a lot of these organization provide employment which is far more importnant than the taxes foregone. If the govt pushes too hard (eg haliburton) they will just go overseas to countries with zero taxes.
Eden | Aug 13, 2008 | Reply
Time for me to become an American Corporation!
But seriously, how do we solve this? Flat tax perhaps?
Ron@TheWisdomJournal | Aug 13, 2008 | Reply
Just remember that no tax increase ever expanded an economy. Taxes restrict economies.
What is the ultimate goal? If it’s just to “punish” a corporation, good luck. It won’t happen. If it’s to increase revenues to the Treasury, we have a method for doing that–tax DEcreases. Every time taxes are decreased, revenues to the Treasury increase. “Why” is up for debate, but the numbers bear it out. There is a point where revenues start decreasing but I’ll leave figuring out that tangent to the tax curve up to the Calculus majors in the audience.
What do we want to accomplish? We certainly don’t want equity of outcome, that would be a socialistic disaster and a big wet towel on competition. If we want equity of opportunity, then we have something to work with.
I’m very interested in the Fair Tax and have read a great deal on it, pro and con. So far, the pros have the edge, but it will never happen without another American Revolution. Maybe when the top 1% are forced to pay 99% of all taxes and they just move to Belize, we’ll realize the error of a progressive tax.
What do we want to accomplish? Will this action do that? What will happen if we do this? What will happen if we don’t? What will not happen if we do this? What will not happen if we don’t?
I think if we all ask these questions and try to come up with answers that will work, we can accomplish anything. But we have to follow what will happen to each dollar as it flows through the system. Everyone needs and should contribute financially to making our country great. We just need to insure that our actions don’t pop up with some unintended consequences (like costs being passed on to those struggling consumers–you and me!).
Ron@TheWisdomJournal | Aug 13, 2008 | Reply
@Miranda
Go to the Exxon’s website and pull up their latest annual report to see how much they paid in taxes. You’ll be surprised.
Ron@TheWisdomJournal | Aug 13, 2008 | Reply
“Their customers pay the corp taxes in the price, but if the corporation does not have to pass that on to the govt, who loses?”
No one loses. It isn’t a zero sum game.
Look at it like this, as a percentage of gross income, I paid over 25% in income taxes last year, despite having a mortgage and a boatload of medical expenses.
The average corporation pays less than 3% of it’s gross income in taxes.
Businesses are allowed to deduct all expenses before paying taxes. How would you like for your car’s depreciation to be a deduction! Individuals cannot deduct half the things that businesses can deduct. Individuals are essentially taxed on cash flow, whereas businesses are taxed on net income.
The government comes out far better financially taxing US rather than taxing THEM. It’s just more politically expedient to say otherwise.
(I’m not trying to hijack this thread–I promise!)
Patrick | Aug 13, 2008 | Reply
yeah, corporations and taxes… It’s a big issue. So are all the loopholes, credits, incentives, kickbacks, etc. It really does come down to the little man footing the bill. Unfortunately, the rich guys are usually the guys in power and can keep it that way through lobbying or creating law. The only way to deal with it is to change it (very difficult for one person), or learn to adapt by starting your own business or renting real estate and taking advantage of these same tax advantages. (if you can’t beat ‘em, join ‘em).
Of course, that’s the cynic in me talking. The reality is that it is much more complex than that, and certainly beyond the scope of my expertise. It does make for a fun debate though.
MITBeta @ Don't Feed the Alligators | Aug 14, 2008 | Reply
@ Ron: “Every time taxes are decreased, revenues to the Treasury increase.”
Care to cite a reference for this?
Ben Stein, conservative economist (and actor) seems to disagree:
“That is, cutting taxes, especially on upper-income Americans, does not generate so much economic activity that it replaces all the lost I.R.S. take and then some. At least those have been the results so far.”
http://economistmom.com/2008/08/ben-stein-says-taxes-must-come-up/
David | Aug 14, 2008 | Reply
I am with Alligators, taxes have gone down for 8 years now…and where has the benefit been for either the rich or the poor? Or even the economy as a whole?
Ron@TheWisdomJournal | Aug 14, 2008 | Reply
@Alligators
http://www.irs.gov
It’s all right there.
MITBeta @ Don't Feed The Alligators | Aug 17, 2008 | Reply
Nope not true. Just see this website for more information:
http://www.google.com
:rollyeyes:
Jon | Aug 18, 2008 | Reply
Who cares if most corporations don’t pay? The S&P 500 alone accounts for over 70% of the total market cap of US companies! What the bottom 1 million corporations do is pretty much irrelevant. Also, the report is looking at data from just one year (2005). Occasionally corporations pay too much income tax in one year, and then pay nothing the next year. Or they carry forward a loss from a previous year and despite having profits they still don’t pay.
I have to question the partisanship of a report (or at least the coverage of that report) that makes no mention of salient facts like that, or as others have mentioned, that some types of corporations don’t pay income tax by design.
david | Aug 18, 2008 | Reply
Pretty funny Alligators…
Jon - Who cares? Seriously? So do you care if none of the rest of us pay taxes either?