By Marisa Taylor
(This story has been updated to include a response from General Electric.)
General Electric made big waves earlier in the year when The New York Times reported that the company paid no taxes in the U.S. in 2010, and in fact claimed a tax benefit of $3.2 billion.
How could a company that made $14.2 billion in profits worldwide avoid paying taxes? G.E. wasn’t the only one, according to a new report released on Thursday by the Citizens for Tax Justice and the Institute on Taxation and Economic Policy. The two advocacy groups, which could be fairly described as left-leaning, claim that among the 280 most profitable U.S. companies, 30 of them paid “less than zero” in taxes in the last three years, and 78 of the companies didn’t pay any federal income tax in at least one of the last three years.
The report comes as a bipartisan committee of six Republicans and six Democrats struggles to reach an agreement over how to cut the U.S. budget deficit. The so-called “supercommittee” has to come up with a deal by Nov. 23 to save at least $1.2 trillion over 10 years, or risk tripping automatic budget cuts that would slice deeply into spending for defense and for domestic programs. So far, the panel remains divided over the issue of whether to raise taxes; Democrats insist on raising revenues and Republicans are against any increases.
Hey middle class, tell us about yourselves
While the statutory tax rate for corporations in the U.S. is 35 percent, the report says companies use legal tax loopholes and move business offshore to evade taxes. As a result, the average tax rate for all 280 companies was 18.5 percent over the last three years. Only 71 of the 280 companies, or about 25 percent, paid more than 30 percent in taxes over the three years, with an average tax rate of 32.3 percent.
Power company Pepco Holdings apparently had the lowest tax rate, at negative 57.6 percent. The report said some companies came up with so many tax breaks that their taxes were in effect “negative,” and they even received tax rebate checks from the U.S. Treasury. It explained that “negative tax rates” mean that the company made more after taxes than before taxes.
Wells Fargo received the most in tax subsidies among all 280 companies, raking in nearly $18 billion in tax breaks in the last three years. All 280 companies took in a combined $222.7 billion in tax subsidies over the last three years.
GE, for one, took issue with the study, as well as with the New York Times story published in March.
A GE spokesman said that in both cases the authors are relying on “book accounting” reported to federal securities regulators that may not always reflect actual taxes paid.
“The report is inaccurate and distorted,” said Gary Sheffer, GE’s vice president for corporate communications. “GE paid billions of dollars in taxes in the United States over the last decade, and we expect our overall tax rate will be approximately 30 percent in 2011.”
With respect to industry, the report found that industrial machinery companies had the lowest effective tax rate within the last three years, with an average federal income tax rate of negative 13.5 percent. And 16.8 percent of all federal tax subsidies went to financial services, the largest share of any industry; financial services, along with utilities, telecom and oil and gas were the four industries that received more than half of the corporate tax subsidies.
“This is not an ‘anti-business’ report,” the authors of the study wrote. “On the contrary, we, like most Americans, want our businesses to do well…. But we also need a much better balance when it comes to taxes. Just as workers pay their fair share of taxes on their earnings, so should successful businesses pay their fair share on their success.
“But today corporate tax loopholes are so out of control that most Americans can rightfully complain, ‘I pay more federal income taxes than General Electric, Boeing, DuPont, Wells Fargo, Verizon, etc., etc., all put together.’”