Forbes: American Families Are Bearing the Tax Burden
media mentionJessica Bosari, Contributor
Anyone with access to a news broadcast can see the middle class is suffering from bearing the brunt of the tax burden. In an ideal situation, people and business would pay taxes proportional to their earnings and tax bracket. The scales however, are not balanced in the country’s tax practices.
No wonder the middle class is shrinking. At the same time more people are falling into the ranks of the poor, painful budget cuts make life harder for those in need. One budget cut took $375 million from jobs under the Senior Community Service Employment Program (SCSEP). Another took $425 million from low income housing under the Section 202 Supportive Housing for the Elderly program. There simply isn’t enough federal revenue to help all of the people in need.
The Corporate Tax Rate
As of today the corporate tax rate is between 15 and 39 percent, which sound like fair enough figures. Close studies by Citizens for Tax Justice and the Institute on Taxation and Economic Policy however, show that of 280 of the nation’s biggest companies have slithered their way around the corporate tax rate. They really pay only about 18.5 percent. These studies confirm what many long suspected; that the tax code benefits corporate taxpayers through loopholes often influenced by special interests.
The 280-business study consisted of only Fortune 500 companies and they were all profitable between the economic crash of 2008 and 2010. The number crunching revealed that 111 of those companies paid less than 17.5 percent of their taxes, 98 of them paid between 17.5 and 30 percent, 71 paid over 30 percent, but 30 companies paid nothing at all.
Another 2008 study, this from the Government Accountability Office, showed that 55 percent of US companies found a way to avoid paying taxes altogether in at least one out of seven years examined.
How Do They Get Away with It?
The system of inverted incentives allows some corporations to walkway from taxes. Corporations hire lobbyists to go out and lobby for special tax benefits for the companies they represent. When successful, these breaks become part of the tax code. It’s legal and it works.
Reagan did a lot to stop this madness, but it was since undone. During Reagan’s administration, he cut special tax breaks at all for businesses. Those breaks have since slowly crept back in, infecting the entire tax system, resulting in the middle class footing the bill. The corporate contribution to taxes has dropped from 30 percent in the 1950’s to 6.6 percent by 2009. The New York Times reports that, “Targeted tax preferences, which Congress created to intentionally benefit specific companies or industries, cost an estimated $100 billion more a year.”
The Corporate Perspective
To be fair, you can’t blame big business alone for the problem. After all, if you could write off all the things that can go wrong in your life, you certainly would. Corporations are simply fulfilling their obligations to shareholders by maximizing profits. The law lets them do it. They can show one set of books outlining enormous profits to investors and another set of books that makes them look destitute to the IRS. The greatest blame falls on the lawmakers who gave favors, often in exchange for political donation, which thanks to the Supreme Court, don’t require disclosure.
So what kind of breaks have our generous lawmakers bestowed? NASCAR racetrack owners write off what they pay to install and maintain those racetracks every year. Puerto Rican rum companies get a great tax break as well.
“How Wall Street Occupied America” Robert Lenzner Robert Lenzner Forbes Staff
The biggest tax breaks go to businesses that write off failed investments and work-related equipment that did not have time to depreciate. Many companies are extra lucky enough to be in industries that allow them to write off even more. Oil and gas companies can write off a portion of their drilling costs. These breaks can all stack on top of each other and eliminate the tax burden. There have even been cases were the tax debt went lower than zero and into the negative, providing an offer on future taxes. Companies like General Electric and Pepco Holdings wrote off their entire tax burdens and earned future offsets.
GE Intelligent Platforms
General Electric earned almost $10.4 billion over the course of three years and has a negative tax burden of 45.3 percent. Pepco brought in $882 million in that same period and was able to write itself down to a tax rate of negative 57.6 percent. Pepco makes no apologies for itself, stating that everything it does during tax time is legal and that the company is audited on a yearly basis. General Electric took issue with the study and called it distorted.
Many Problems, Few Solutions
Most lawmakers in Washington admit that the tax system is in need of reform. President Obama cited tax reform during his State of the Union address and many politicians of both parties agree. Candidates for the 2012 election are throwing out tax reform ideas left and right.
In theory, it should be simple to remove loopholes and tax breaks. But with so many politicians involved, so much for them to gain, and an uncooperative political climate makes it is almost impossible to achieve.