Many businesses rail about state and federal taxes - the latter often described as among the highest business tax rates in the world. Yet thanks to an array of write-offs through tax shelters, tax credits, imaginative accounting and aggressive lobbying for new tax breaks, few, if any, big businesses really pay much in taxes relative to their profits.
The extent of tax avoidance has become shocking. Consider the report on General Electric, the nation's largest corporation, provided by The New York Times on its Mar. 25 front page. The company, The Times learned, turned in a stunning earnings report in 2010, posting global profits of $14.2 billion, of which $5.1 billion was derived in its American operations.
The federal government's tax take? $0. Nada. Indeed, the company actually claimed a tax credit of $3.2 billion, according to The Times.
The Times report on G.E. and other companies generally would make ordinary Americans blanche, or feel like chumps. While working Americans typically pay 25 percent to 30 percent in federal income taxes, in addition to state and local property taxes, corporate giants now commonly get away with paying a far lower effective rate.
Where corporate taxes used to represent a 30 percent share of the federal government's revenue in the mid-1950s, The Times found, that share had plunged to just 6.6 percent in 2009. The dramatic drop, which not surprisingly is inversely proportional to the rise in federal debt, also coincides with a growing army of business lobbyists who continually seek legislative blessings from Congress in the form of new tax breaks, credits and loopholes.
G.E. has apparently become the foremost lobbying power for tax breaks. One of the biggest allows corporations to avoid paying U.S. taxes on profits earned abroad so long as those profits are not brought home. G.E.'s last tax filing, posted a week before the Japanese earthquake-tsunami-nuclear plant disaster, said its U.S. tax burden would amount to 7.4 percent of its American profits, or about a third of what most multi-national corporations claim, The Times said. But because they included taxes on profits that would not be re-patriated, the company actually would get tax money back.
President Obama has proposed lowering the corporate tax rate, but simultaneously ending some tax breaks so that the lower rate would be revenue neutral. If G.E.'s situation is part of a larger pattern, and apparently it is, such a fix would far too generous for a country with a $14 trillion deficit and a declining standard of living and wages for ordinary Americans.
Critics contend, with sound reasoning, that the sort of tax credits that enable G.E. and other multinational countries to reap and keep extraordinary profits abroad without paying federal taxes has become a disincentive to investments in American factories and jobs. America can't afford that any longer. Indeed, Congress should be rushing to correct this inequity, both to bolster jobs and bring down the deficit. Which raises the question, why isn't Congress, and its deficit-hawk Republicans, already focused to turning the corporate tax policy around to help rebuild our economy?