Business Taxes, Or the Lack Thereof

There is an alternative universe somewhere in which America’s biggest businesses actually pay taxes. I know, I know, I am being idealistic. Well some of them do, even here on earth – blessed be Monsanto! Last year anyway. But many don’t. Indeed many seem to be able to collect refunds of grotesque proportions.

Ask most anyone in Washington policy circles and you will be told that American companies face a major global disadvantage: our corporate tax rate is one of the highest around. This, supposedly, is a huge burden on the poor dears, and is just one more reason why these put-upon patriots are groaning rather than beaming. Listen to their apologists and you begin to wonder how they survive at all in this intense anti-business, hostile, and undeserving nation of big business haters. That no company worth its salt actually pays anything close to the tax rate is never mentioned in polite circles.

It is uncouth to mention reality when big business wants to make its case.

And I am realistic: this is an imperfect world, soany tax paid by big corporations is simply passed along to consumers ultimately, just as any cost of business is.

Nonetheless, if we have a corporate tax we ought to try to collect some corporate taxes. Our current effort is embarrassing in its ineffectiveness.

The Citizens for Tax Justice and the Institute on Taxation and Economic Policy have just issued a joint report documenting just how far we are from even that minimal goal. According to their report, corporate taxes covered over 25% of federal expenditure during the first two post-war decades. Then big business started to attack through their lobbying efforts. They managed to buy off enough of our legislature that by the 1990’s that percentage had fallen to around 11%. Not content, they pressed on. So by 2010 corporate taxes covered a mere 6% of federal outlays.

That is an epic lobbying success story. Or corruption on a grand scale.

This is, of course, a byline in the long pro-business deregulatory narrative of the last three decades. At each step along the way big business bleated away complaining of its unfair burden. It coupled this with threats of imminent collapse, outsourcing, offshoring, and all sorts of dire threats. As true patriots these companies wanted – they told us – to continue to employ people here, but these taxes were breaking their backs. Our tax rate of 35% is simply the last straw. No wonder we are not competitive anymore. It was able to purchase protection and subsidy. It showed its gratitude by pouring cash into politicians pockets. By way of free speech naturally. Companies are people too, as Mitt Romney blurted out last month.

That none of this conforms with the facts should surprise no one who listens to either modern politics or economics. Most all of economic theory has nothing to do with actual economies and the facts found within them. And no element of reality stands between our policy makers and their craven efforts to pander to those who pay for their election.

A few facts from the report:

• Verizon: reported a profit of about $12 billion in 2010. It didn’t pay any taxes. No. It received a refund of $703 million.
• General Electric – whose CEO is playing a role for Obama as jobs czar – earned $10.4 billion in profit in 2010. It managed to scam a refund of $4.7 billion. If I were the Verizon CEO I would be firing my army of lawyers and accountants and hiring GE’s.
• Pepco, a power company in DC, hit the jackpot. It scammed a refund of $508 million on profits of $882 million.
• 37 of America’s largest companies pay no taxes at all. None. That is to say that you or I pay more than DuPont, Wells Fargo, Boeing, and the aforesaid Verizon and GE added together. I bet that makes you feel good. Patriots all.
• The 56% of all tax subsidies and tax breaks went to four industries: finance, utilities, telecom, and oil/gas/pipelines.
• The list of companies getting the biggest subsidies includes the poverty stricken: Wells Fargo, AT&T, Goldman Sachs, Exxon, IBM, Boeing, Verizon, GE, Proctor and Gamble, and PNC Financial.

Clearly it pays to hire that army of lawyers and accountants: Federal Express scammed sufficiently to get its tax rate down to 0.9% averaged over the last three years. UPS, in the same business and a direct competitor, paid 24.1% If you are a UPS shareholder its time to join the line complaining.

The report is worth your while reading. It is an endless indictment of our tax code. It will make you annoyed, angry or outright murderous.

And it will have no impact.

This is because, as the report writers point out, the prevailing wisdom in Washington is that our top companies need help. If there was ever a more direct example of how corrupt American politics has become it is this. These companies are on the public dole, and yet they want more. Those corporate jets are getting a tad old after all. And those CEO’s all need shiny new cufflinks – and I include the new female CEO of IBM in that category after having checked out what she was wearing in her PR campaign after her recent promotion.

As I said: the realist in me knows that fixing the loopholes that create this mess will merely pass the higher taxes along to customers. None of these companies are known to swallow such costs in the name of competition. And most, as you will have noticed, are in heavily subsidized and protected industries. They are not typically under entrepreneurial cost or competitive pressure. They are used to twisting Washington around, and fleecing customers at the same time.

Ultimately knowing all this will simply annoy us rather than lead to change. For all the storm being kicked up about tax reform, we all know that big business will be able to buy enough votes to protect its turf. Reform will go nowhere other than to continue to shift the tax burden onto the little people who have no representation in Congress. Taxation without representation – now that’s a rallying cry worth using. I wish somebody had thought of that.

Perhaps we should save ourselves the trouble and just surrender to the plutocrats. Let’s abolish corporate taxes altogether. That way they can fire all those tax lawyers and accountants and make even more profit. After all they need more profits. It’s not like corporate profits are at a seventy year high or anything.

Oh. Wait. Yes they are.

Now that makes me even more upset.