Big Companies Pay Little in Taxes

Yet another study shows that the largest U.S. companies pay very little in taxes. The problem, if it is one, has gone without a solution for years. There is nothing on the horizon that would indicate a change in these tax levels. American corporations may be more clever than the federal government, and perhaps it is best that way.

Citizens for American Tax Justice said of its new research: “This study takes a hard look at the federal income taxes paid or not paid by 280 of America’s largest and most profitable corporations in 2008, 2009 and 2010. The companies in our report are all from Fortune’s annual list of America’s 500 largest corporations, and all of them were profitable in each of the three years analyzed. Over the three years, the 280 companies in our survey reported total pretax U.S. profits of $1.4 trillion.” Under the tax code, these firms would have paid twice that much, if each paid the full 35% that is the normal corporate tax.

The Citizens for American Tax Justice list of companies that paid no federal corporate taxes from 2008 to 2010 includes many of the same companies that are on similar lists, such as General Electric (NYSE: GE), Verizon (NYSE: VZ), DuPont (NYSE: DD) and Boeing (NYSE: BA).

The report says the reason for the lack of payments is “tax-avoidance schemes devised by major accounting firms.” The federal government agencies that enforce the tax code are not naive enough to believe that big companies will fail to take advantage of every provision of the rules.  Corporations have slipped through the loop holes that were part of the legislation that created the code. Their accountants make a large portion of their own profits by turning the laws to their advantage.

What Citizens for American Tax Justice does not put into its new report is what happens to the money that does not go to taxes. Eventually, almost all of this capital makes it back into the financial system, either in the U.S. or overseas. Even a company like Apple (NASDAQ: AAPL) will not hold the $80 billion it has forever. The cash will return to the economy by way of dividends, investments or job additions. The complaint about tax payments does not take that into account.

Douglas A. McIntyre