Report: Corporate Profits Directly Tied To Preferential Tax Treatment

If you needed evidence that corporate tax rates are far too low and large corporations receive far too many tax benefits, look no further than the new study just published by Citizens for Tax Justice.

CTJ undertook a study of the 280 largest companies in the United States to see what they actually paid (or didn't pay) in taxes. From their press release:

These 280 corporations received a total of nearly $224 billion in tax subsidies,” said Robert McIntyre, Director at Citizens for Tax Justice and the report’s lead author. “This is wasted money that could have gone to protect Medicare, create jobs and cut the deficit.”

30 Companies average less than zero tax bill in the last three Years, 78 had at least one no-tax year.

Financial services received the largest share of all federal tax subsidies over the last three years. More than half the tax subsidies for companies in the study went to four industries: financial services, utilities, telecommunications, and oil, gas & pipelines.

U.S. corporations with significant foreign profits paid tax rates to foreign countries that were almost a third higher than they paid to the IRS on their domestic profits.

That $224 billion number is really significant. If we were to extrapolate that into a ten-year number to compare with CBO analyses of various revenue proposals, it would be an expenditure of about $750 billion over a ten-year period. Imagine that. We wouldn't have to worry about Medicare cuts or deep cuts to discretionary spending if those tax preferences were rolled back.

Digging deeper into the data reveals an inherent unfairness in how those tax subsidies are distributed. Retail and health industries paid, on average, 30 percent or more in corporate taxes. Here are how the tax goodies fell for the companies who paid little or no corporate taxes:

Effective tax rates varied widely by industry. Over the 2008-10 period, effective tax rates for our 280 corporations, when grouped by industry, ranged from a low of –13.5 percent (a negative rate) to a high of 30.4 percent. In the year 2010 alone, the range of industry tax rates was even greater, ranging from a low of – 36.4 percent up to a high of 30.6 percent.

Industrial machinery companies enjoyed the lowest effective tax rate over the three years, paying a negative tax rate of – 13.5 percent of their profits in federal income taxes. This industry’s taxes declined sharply over the three years, falling to – 36.4 percent of profits in 2010. These results were largely driven by a long-time champion tax avoider, General Electric, but GE was not alone. Four of the seven companies in this industry paid effective tax rates of less than 10 percent during the 2008-10 period.

Other low-tax industries, paying less than half the statutory 35 percent tax rate over the entire 2008-10 period, included: Information Technology Services (2.5 percent), Utilities (3.7 percent), Telecommunications (8.2 percent), Chemicals (15.2 percent), Financial (15.5 percent), Oil, Gas and Pipelines (15.7 percent), Transportation (16.4 percent), and Aerospace and Defense (17.0 percent).

Only two industries, Retail & Wholesale Trade and Health Care, paid an effective tax rate of 30 percent or more over the full three-year period. Effective tax rates also varied widely within industries.

As a subgroup, large defense contractors also managed to pay low rates, with their effective tax rate falling from 19.3 percent in 2008 to 10.6 percent in 2010. Top contractors included Lockheed Martin, Boeing, Northrup Grumman and General Dynamics. Boeing in particular stood out, since they had a negative tax rate of 1.8 percent for that three-year period.

This report debunks the myth that lower taxes create jobs. If you look at the industries with the lowest taxes, they're also the industries that have contributed to the unemployment rate, not the other way around. I'm waiting for Republicans to admit that...and I'll probably wait a long time.

You can read the entire report here (PDF).

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