Many of America’s biggest and most profitable corporations pay little or no federal income taxes, a new study has found. Conducted by the Citizens for Tax Justice and the Institute on Taxation and Economic Policy, the comprehensive five-year study of 288 highly profitable Fortune 500 companies found that 111 of them paid no federal corporate income tax in at least one of the last five years; one-third paid a U.S. tax rate of less than 10 percent over the same period, including 26 that paid nothing at all.
“Corporate lobbyists incessantly claim that our corporate tax rate is too high, and that it’s not ‘competitive’ with the rest of the world,” said Robert McIntyre, Director of Citizens for Tax Justice and the report’s lead author, in a press release. “Our new report shows that both of these claims are false. Most of the biggest companies aren’t paying anywhere near 35 percent of their profits in taxes and far too many aren’t paying U.S. taxes at all. Most multinationals are paying lower tax rates here in the United States than they pay on their foreign operations.”
Boeing, General Electric, and Verizon were among the 26 companies that paid no federal income tax in the five-year period, despite combined pre-tax profits of $170 billion. While the federal corporate tax rate is 35 percent, many corporations have used the tax code’s complexity and gray areas to drive their tax rates to zero. Offshore tax sheltering, accounting rules, stock options, and industry-specific tax breaks are some of the reasons why companies like Priceline have been able to pay such low tax rates.
Citizens for Tax Justice and the Institute on Taxation and Economic Policy examined five years of data on federal incomes taxes and limited their review to every Fortune 500 company that was profitable each year of the study and provided sufficient, reliable information in their financial reports to allow calculation of their effective U.S. and foreign tax rates.
“It’s a sorry situation when most Americans can rightly say, ‘I pay more in federal income taxes than General Electric, Boeing, Verizon, Pepco, Priceline, Duke Energy and 20 other big corporations, all put together!’’ McIntyre said.
Low and no-tax companies affect all Americans, the report found. Because corporate tax payments have fallen over the last quarter century, the general public has had to pay more for public services or else face mounting national debt. And companies who are able to reduce their tax rates put their competitors at a disadvantage.
Among the report’s other findings:
- The total amount of federal income tax subsidies enjoyed by the 288 profitable corporations over the five years was $362 billion.
- Wells Fargo tops the list of corporations receiving the most in tax subsidies, getting more than $21 billion in tax breaks from the U.S. Treasury from 2008 through 2012.
- Pepco Holdings had the lowest effective tax rate of all the companies in the study, at negative 33 percent over the five year period.
- Industry tax rates varied widely, from a low of 2.9 percent for utilities to a high of 29.6 percent for healthcare companies.
- More than half of the federal corporate tax subsidies received by companies in the study went to four industries: financial services, utilities, telecommunications, and oil, gas and pipelines.
Some companies took exception to the study’s findings, including GE, which disputed how the numbers were calculated. A spokesman for Boeing said the company plays by the tax rules and pays it taxes. A spokesman for Verizon both said they comply by all tax laws and pay their taxes.
Citizens for Tax Justice recommended a series of reforms to help change the federal income tax, including Congress repealing the rule allowing American corporations to defer their U.S. taxes on their offshore profits, limiting the ability of companies to use executive stock options to reduce their taxes, reinstating a corporate alternative minimum tax, and requiring more public disclosure of corporate income and tax payments than the Securities and Exchange Commission’s regulations currently mandate.