San Francisco Chronicle: Wells Fargo gets big break in federal income taxes
media mentionKathleen Pender
Updated 4:15 am, Wednesday, February 26, 2014
Out 0f 288 Fortune 500 companies that made money every year between 2008 and 2012, Wells Fargo received the largest estimated federal income tax subsidies – $21.6 billion over the five-year period, according to a report issued Tuesday by Citizens for Tax Justice.
The group, which says it is dedicated to tax fairness, published a similar report in November 2011, but it covered only three years of data and a slightly different group of companies. Wells Fargo topped the subsidy list in that report, too, with $18 billion in tax breaks.
The new report looked at how much the 288 companies would have paid in federal income tax on their U.S. profits over the five-year period at the statutory corporate rate of 35 percent, compared with what they reported having paid. It considers the difference a tax subsidy, and says it comes from a variety of tax breaks Congress has bestowed on U.S. companies.
Some are widely available, such as accelerated depreciation, which lets companies write off the value of capital assets faster than they really wear out. Another is a deduction for profits that workers make when they exercise the most common type of employee stock options. Employees pay income tax on this profit, but companies get to deduct it. It can be a huge write-off for tech and other companies that bestow options widely and generously.
Facebook “used this single tax break to zero out all income taxes on a billion dollars of U.S. profit in 2012,” the report says. The Institute on Taxation and Economic Policy collaborated on the study.
Other tax breaks are company- or industry-specific. They include write-offs for oil and gas drilling, providing alternatives to oil and gas, making video games, building NASCAR race tracks and making movies.
Big profit, big breaks
Wells Fargo enjoyed the largest subsidy by dollar volume because it’s so profitable. “They make a lot of money, they have a lot of tax breaks,” says Robert McIntyre, director of Citizens for Tax Justice.
The report says Wells Fargo paid about $11.6 billion in federal income tax over five years on $94.7 billion in U.S. profit, an effective rate of 12.2 percent.
Wells says that it “fulfills its tax obligations” and that in 2012 alone it paid $9.1 billion in federal and $1.2 billion in state income taxes. “Over the past 10 years, Wells Fargo and Wachovia combined have paid more than $40 billion in U.S. federal and state corporate income taxes.”
McIntyre says he wanted to provide five years worth of data because the last time he did the report, some companies explained their low tax payments as “an aberration” or said, “We deferred those taxes, we will be paying them soon.”
The new report excluded 17 companies that were profitable all five years but did not provide a “plausible” breakdown of their U.S. and foreign profits. For example, a company might report that most of its pretax profits were foreign even though most of its revenue and assets are in the United States, which suggests it is shifting U.S. profits to overseas tax havens.
The excluded firms are mainly in tech and biotech and include Apple, Amgen, Dell, Google, eBay, Microsoft, Cisco and Gilead Sciences.
The report is derived from the numbers companies show in their annual reports to shareholders and the Securities and Exchange Commission, not on their actual tax returns, which are not made public.
Other highlights from the report:
— The 288 companies paid an effective federal income tax rate of just 19.4 percent between 2008 and 2012, far lower than the standard 35 percent rate. However, the rates ranged widely by industry, from 2.9 percent (for gas and electric utilities, which benefit greatly from accelerated depreciation) to 29.6 percent (for the retail/wholesale trade and health care).
McIntyre says retailers and hospitals pay the highest rates because “they can’t threaten to leave” the country.