Some Big Corporations Don’t Pay Taxes, Either

I recommend reading the whole article at this link:

http://economix.blogs.nytimes.com/2012/09/18/are-corporations-overtaxed/

September 18, 2012
By BRUCE BARTLETT

Bruce Bartlett held senior policy roles in the Reagan and George H.W. Bush administrations and served on the staffs of Representatives Jack Kemp and Ron Paul.

On Sept. 13, Harold Hamm, chairman and chief executive of Continental Resources, testified before the House Committee on Energy and Commerce about achieving energy independence. He said his company, an oil producer, could produce much more if federal policies didn’t hold it back. Among them is the tax system. Mr. Hamm said his company paid an effective tax rate of 38 percent.

¶One often hears corporate executives make such assertions. Republicans always accept them at face value, because to them there is no public policy problem that isn’t caused by high taxes. Tax cuts are their solution to just about every problem. Cutting the corporate tax rate is among the key measures that all Republicans favor to stimulate growth.

¶One problem with the Republican theory is that many big corporations actually pay little, if any, federal income tax. For example, The New York Times has reported that General Electric, the sixth-largest corporation in the United States, earned $14.2 billion in 2010, but disclosed in federal filings that it had no federal tax liability.

¶This disparity between the high taxes that many people say they believe American corporations pay and the low rate they actually pay applies to Mr. Hamm’s business as well. Citizens for Tax Justice, a labor-backed group, looked at Continental Resources’ financial reports, where it must disclose tax payments, and found that in 2011 it paid a federal tax rate of 1.9 percent on profits of close to $700 million. Its average federal tax rate over the last five years was 2.2 percent.

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¶The complexity of the corporate income tax makes it easy to evade and avoid American taxes. Edward D. Kleinbard, a professor of tax law at the University of Southern California, points to the easy availability of tax havens, where corporations artificially book their profits and avoid taxation on them.

¶I had a personal experience with such tax havens recently. I needed a copy of Microsoft Word for a new computer and went to Microsoft.com to buy and download it. But my credit card company refused the charge. When I checked to see what the problem was, I was told that the credit card company was suspicious because the charge went to a company based in Luxembourg.

¶Luxembourg is, of course, a notorious tax haven. Arranging to realize its profits in such places has long been a tax-avoidance policy practiced by Microsoft and other big corporations. According to a July 22 report by the London-based Tax Justice Network, as much as $32 trillion of global financial wealth may be parked in the world’s tax havens.

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Republicans often point to the statutory corporate tax rate in the United States as evidence that American companies are overtaxed. Indeed, it is true that the United States has the highest statutory central government tax rate among members of the Organization for Economic Cooperation and Development. .....

However, as a Sept. 13 report from the Congressional Research Service explains, looking only at the statutory rate is highly misleading as an indication of the burden of the corporate tax. That is because it does not take account of the many tax expenditures that reduce the effective tax rate paid by American corporations. In 2011, they reduced corporate tax revenues by $159 billion.

As a consequence, the weighted effective tax rate – taxes as a share of profits – is 27.1 percent in the United States, which is below the 27.7 percent average rate of O.E.C.D. nations. The weighted average marginal tax rate on corporations – the tax on each additional dollar earned – is 20.2 percent in the United States, compared with 18.3 percent in the O.E.C.D.

As a consequence, the weighted effective tax rate – taxes as a share of profits – is 27.1 percent in the United States, which is below the 27.7 percent average rate of O.E.C.D. nations. The weighted average marginal tax rate on corporations – the tax on each additional dollar earned – is 20.2 percent in the United States, compared with 18.3 percent in the O.E.C.D.

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