The most consistently profitable companies in the Fortune 500 only pay about half the statutory federal income tax rate—a fourth pay less than 10 percent. Some even get refunds from Uncle Sam—30 companies have enjoyed a negative income tax rate the past three years despite making $160 billion in pre-tax profits.
It’s the definitive study that punctures calls for a cut in the federal income tax rate on corporations, provided yesterday by Citizens for Tax Justice and the Institute on Taxation and Economic Policy (CTJ and ITEP) in “Corporate Taxpayers and Corporate Tax Dodgers, 2008-2010.”
Looking at shareholder filings for those Fortune 500 companies that reported profits in each of the three years, CTJ and ITEP found that 280 companies paid an average effective rate of just 18.5 percent and for the last two years only 17.3 percent, less than half the statutory rate of 35 percent.
The study catalogs the underlying causes, many of which have eroded progress in the federal tax code made in the 1986 reform act that plugged many loopholes: accelerated depreciation, stock options, industry-specific tax credits, and offshore tax sheltering.
Bottom line, it’s why federal corporate income taxes have plummeted as a share of GDP from almost 4 percent in the 1960s to just over 1 percent today. And a key reason, CTJ director Bob McIntyre argues, why any corporate tax reform should not be “revenue neutral” but should instead plug loopholes and restore balance.
For those of us who follow companies that aggressively seek state and local economic development subsidies, including avid users of Subsidy Tracker, there are familiar names among the low-tax rate/high-tax break crowd, like Boeing, Walmart, and Goldman Sachs.
Indeed, CTJ and ITEP will soon release a follow-on study looking at state taxes paid by the Fortune 500. Although publicly traded companies only report such taxes in one aggregate 50-state number, the finding will show how tax exemptions and credits cut the actual tax rate companies pay (along with loopholes like Passive Investment Companies and failed giveaways like Single Sales Factor).
For a primer on how companies dodge state income taxes, see chapter 4 of The Great American Jobs Scam, and for a summary of how corporate tax dodging has shifted the burden for public services onto working families, see chapter 8.
Finally, the study also punctures the argument that the U.S. has to lower its corporate tax rates because of lower rates offshore. Of those companies among the 280 with significant foreign profits, they paid foreign tax rates almost a third higher than their domestic rates. It argues that “closing the loopholes will have real benefits, including a fairer tax system, reduced federal budget deficits, and more resources to pay for improving our roads, bridges and schools — things that really are important for economic development here in the United States.”