The Hill: Corporations paid half statutory tax rate
media mentionBy Bernie Becker – 11/03/11 12:01 AM ET
A large swath of Fortune 500 companies, on average, paid an effective tax rate that was essentially half the top statutory corporate rate of 35 percent in 2009 and 2010, a new study found.
The report, from the liberal advocacy groups Citizens for Tax Justice and the Institute on Taxation and Economic Policy, not only found that some sectors paid significantly less than others. It also showed that within certain industries – like retail, pharmaceuticals and aerospace – some prominent companies paid far less than others.
Robert McIntyre, CTJ’s director, told The Hill on Wednesday that he hoped the groups’ latest report had a similar impact to one crafted in the 1980s, which is credited with helping build momentum for the last overhaul of the tax code a quarter century ago.
In all, the latest study found that 67 of the 280 Fortune 500 companies it examined had an effective tax rate below 10 percent between 2008 and 2010, with 30 of those corporations having a tax rate of zero or less.
The two groups found that 78 companies paid a rate of less than zero in one of those three years. General Electric, Duke Energy, Wells Fargo and Verizon, with a combined pretax profit of some $98 billion, were among the companies with an average subzero tax rate for the full three years, according to CTJ and ITEP.
On the other side of the spectrum, 71 companies paid more than 30 percent – including Intel, UnitedHealth Group, Nike, McDonald’s and Home Depot.
McIntyre said those findings showed him that policymakers were misguided for pushing for lower corporate rates, which officials say will make American companies more competitive in the global marketplace, and for pressing for a reform of the tax code that doesn’t eat into deficits.
“It still always amuses me, when you look at these companies, a quarter of them pay basically the tax rate they’re required to,” he said. “And they’re still doing well – profitable in all three years. They didn’t have any trouble with that rate. So is that shocking? No. Interesting? Yes.”
Still, the Obama administration has signaled its interest in corporate tax reform, with Treasury Secretary Timothy Geithner saying this year he’d like to see the rate reduce to the high 20s, percent-wise.
The top congressional tax-writers, Rep. Dave Camp (R-Mich) at House Ways and Means and Sen. Max Baucus (D-Mont.) at the Finance Committee, are also pushing for a tax overhaul, with Camp last week unveiling a plan to limit the taxation of offshore corporate profits. House Republicans have also called for reducing the top corporate rate to 25 percent.
The two liberal groups’ report found effective corporate tax rates essentially unchanged from the last time they released a study some seven years ago, despite the fact the economy took a sharp downturn in the interim.
A September 2004 report from the groups found an average effective rate of 17.2 percent for major companies in 2002 and 2003, almost exactly the same as the 17.3 percent rate it found this time around.
But those rates are also sharply lower than the 26.5 percent rate the groups found in the aftermath of the 1986 tax overhaul. A survey examining corporate taxes between 1996 and 1998 found an average effective rate of 21.7 percent.
Some companies and analysts more sympathetic to corporations’ current tax approach have questioned the approach of the two groups, who examine companies’ reports to their shareholders to reach their figures.
Scott Hodge of the Tax Foundation, for instance, said earlier this year that financial reports and actual tax returns, which are not publicly available, tell a much different story.
The companies themselves have also reported much higher effective tax rates than what CTJ and ITEP found – in part because the groups only count federal taxes and corporations often include state, local and deferred taxes, not to mention levies paid to foreign governments.
The report, for instance, said IBM paid 3.8 percent over those three years, but the company says its effective rate was either 25 percent or 26 percent each year.
CTJ and ITEP also declared that Boeing was one of the companies with a subzero rate, at -1.8 percent, over the three-year span. But the aerospace giant says it paid at least 22 percent and as much as 34 percent in those years.
“Over that period – even at the depths of the recession ¬¬– Boeing made substantial investments in our U.S. manufacturing capacity, in the retirement security of our employees (funding our pension plans) and in the development of innovative new products,” Charles Bickers, a company spokesman, told The Hill in a statement.
The new report also found that one entire sector, industrial machinery, had a combined average rate of less than zero between 2008 and 2010. The telecommunications industry also paid around 8 percent, while the oil-and-gas and financial industry hovered around 15 percent.
The retail and health care sectors both paid almost exactly 30 percent during that same time span.
UPS (24.1 percent) and FedEx (0.9 percent) were also among the companies within certain industries that had very different tax rates, according to the report.
Elsewhere, the study found that Nordstrom’s (37.1 percent) paid more than three times as much as Macy’s (12.1 percent), while Texas Instruments’ effective rate (33.5) was roughly nine times higher than Hewlett-Packard’s (3.7 percent).