67% Of American Corporations Pay No Taxes?
By Justin Gardner | Related entries in Money, TaxesIf true, this is pretty bad news. Because more than anything, it suggests that if all the loopholes are closed, American corporations may not even be able compete when they have to play by the rules.
WASHINGTON (AP) - Two-thirds of U.S. corporations paid no federal income taxes between 1998 and 2005, according to a new report from Congress. The study by the Government Accountability Office, expected to be released Tuesday, said about 68 percent of foreign companies doing business in the U.S. avoided corporate taxes over the same period.Collectively, the companies reported trillions of dollars in sales, according to GAO’s estimate.
More than 38,000 foreign corporations had no tax liability in 2005 and 1.2 million U.S. companies paid no income tax, the GAO said. Combined, the companies had $2.5 trillion in sales. About 25 percent of the U.S. corporations not paying corporate taxes were considered large corporations, meaning they had at least $250 million in assets or $50 million in receipts.
So why is this happening?
An outside tax expert, Chris Edwards of the libertarian Cato Institute in Washington, said increasing numbers of limited liability corporations and so-called “S” corporations pay taxes under individual tax codes.“Half of all business income in the United States now ends up going through the individual tax code,” Edwards said.
Also…
[Sen. Byron] Dorgan and [Sen. Carl] Levin have complained about companies abusing transfer prices - amounts charged on transactions between companies in a group, such as a parent and subsidiary. In some cases, multinational companies can manipulate transfer prices to shift income from higher to lower tax jurisdictions, cutting their tax liabilities.
And McCain wants even more corporate tax breaks?
How about we close these loopholes and only then start talking about tax breaks when everybody’s paying their fair share? Does that sound like a plan everybody can get behind?
This entry was posted on Tuesday, August 12th, 2008 and is filed under Money, Taxes. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
August 12th, 2008 at 4:04 pm
Don’t feel too bad about the ability to compete–the same study showed that a similar % of foreign companies doing business in the US didn’t pay income taxes either.
And while I understand the argument that *some* of these companies might be paying taxes as individuals, this government-corporation backscratching has got to stop.
August 12th, 2008 at 4:09 pm
Wow… good post, depressing news.
I don’t think it’s quite as bad as you say, though. Almost as bad, but not quite. I mean, couldn’t the CEOs all take salary cuts and stop getting their huge bonuses to save the companies buckets of bucks? It may not stop them from failing to compete, but at least they’d have tried. How can they have their amazing homes, cars, and all that money while the companies that gave it to them go up in smoke? Forget corporate responsibility, how about CEO responsibility!
Not that I don’t completely agree with you about closing the loopholes. Such blatant corporatism really needs to stop.
August 12th, 2008 at 4:53 pm
see link
August 12th, 2008 at 5:39 pm
Ahem? The “type S” corporation don’t pay taxes because they have to transfer all of their profits to the owners — who then pay taxes as income. This is often done by high-end service type people (doctors, etc) in order to get the harder-to-sue benefits of a corporation without quite so many paperwork hassles.
Big companies that aren’t making any money will also not pay taxes because (Tada!) taxes are generally paid on profits, not on gross revenue.
Which is not to say that we shouldn’t increase our corporate taxes. Or, like Washington state, start taxing on gross revenue and not profit. But *this* article doesn’t provide enough details to know if outrage or pity is called for.
August 13th, 2008 at 7:53 am
This is what happens when idiots comment on the news. Who cares about their revenue. What were their *profits*? Companies are taxed on profits, not revenue. And a good many of those companies are, as the article mentions, S corp and LLCs, which means the companies pay no tax, because the profits are on the owners income tax, which is then taxed. So sure the company paid no tax, but tax was still paid as income tax for the owner.
Before more of you idiots want more taxes passed please understand how taxes work before you pass your righteous indignation. Who do you trust more with money - companies and small business owners, or the government? Think hard about this before answering :)
August 13th, 2008 at 8:25 am
Oh wow this poster doesn’t get it (and the AP writer misrepresented things)
S Corps pay LOTS AND LOTS of taxes. However they pass the taxes through to their owners which pay them.
Disreguarded LLC’s pay all their income just like a guy got it from selling a car or something.
Its incredibly hard to save much in the way of losses in S corps. So when S-Corps *do* pay taxes, they pay more than a C-corp would after a long period of losses.
This number is ENTIRELY DECEPTIVE. While there are copious tax cheats out there, the real number is MUCH MUCH lower than 67%.
August 13th, 2008 at 8:46 am
My basic assumption in such matters is that there is a wealth of complexity to the various systems that makes simple comparisons and statistics prone to mislead me into assuming something that is not quite the case. So I don’t take the bait anymore.
I’m no expert, not in taxes nor economics nor government regulations. But I’ve been around long enough to be comfortable questioning whether such simple unexamined facts are proof of what one of you has described as “blatant corporatism.” It’s awful easy to assume that corporations eagerly and maliciously and greedily direct the vast majority of wealth to insiders like top management and already wealthy investors, while joyfully and unscrupulously squeezing workers dry and casting them aside.
I used to assume it myself. But now I think there WAY more to it than that.
August 13th, 2008 at 1:27 pm
I do not agree that certain corporations should have any more tax breaks than other company. I also think our tax system is completely broken if we have enough loopholes to allow 67% of companies to not pay taxes.
Changing the tax system is the only way to fix this problem. By just fixing the loopholes, the companies will, in turn, increase prices (pass the cost of taxes down to the consumer). I happen to think that a Fair Tax at a state to state level would do well, but that’s just my opinion.
August 13th, 2008 at 2:46 pm
[...] Another thing that is known, is how huge America is in the Capitalist Global Economy. They dwarf any other country in the world. As well, it is known that there is lots of poverty in America. So, does it seem wrong to you that 67% of american corporations paid no taxes AT ALL from 1998 to 2005? Hell yes! That is fucked up! [From Donklephant » Blog Archive » 67% Of American Corporations Pay No Taxes?] [...]
August 13th, 2008 at 4:31 pm
Getting rid of the “S” Corp tax election is a direct tax slap-in-th-face to small business, not big corporations. In fact, s-corps can have no more than 100 members.
August 13th, 2008 at 5:11 pm
Well, it’s certainly a great headline. And if you limited yourself to C corporations (since S corps pay via individual income taxes), and then looked at which of those made a profit vs. a loss . . . well it just wouldn’t be as impressive a number. But the prupose of a story like this is to produce a great headline, not to impart facts — and for that purpose, it’s relly effective.
August 13th, 2008 at 6:15 pm
You hit the nail on the head, wj. This is a non-story generated by people with an agenda that have very little understanding of the tax code. Now, Charles Rangle knows EXACTLY what he is doing when he declares a desire to eliminate the S-corp election: either make all business subject to the double-taxation of c-corps and/or make all income subject to payroll taxes.
It is down-right funny for Justin to characterize an s-corp election as a “loop-hole.” But whatever perpetuates class warfare…
August 13th, 2008 at 7:03 pm
[...] lot has been made of the latest GAO study showing that more than 2 out of every 3 businesses in the United States pay no business Income Tax. Heck, my kneejerk [...]
August 13th, 2008 at 9:50 pm
Much of what has been said is true, however an s corporation DOES allow its “shareholders” to minimize FICA and self-employment taxes, so the overall tax liability is arguably lower and the revenue to the government is decreased.
So, an s-corporation shareholder and an employee making the same amount are taxed differently. Furthermore, if the s corporation shareholder then received the same amount in social security later, his benefit per contribution put into the system is greater.
Again, this is not as bad as paying nothing, but it is also not paying an equal share into the system (note, I said equal, not fair)
August 14th, 2008 at 9:24 am
gerryf - A good way to get audited is by grossly minimizing executive salaries in an s-corp. If this were not the case, I’d be making 20K a year and taking the rest in quarterly dividends. The s-corp election is often a recognition that the shareholder is also an employee of the company. His salary (employee wage) is differentiated from his investment income.
One of the most stupid things Congress could do (even before raising the cap. gain rate) is to get rid of the s-corp. The owner’s SS benefits are commensurate with his contribution.
September 30th, 2008 at 1:52 am
[...] As a sort of cover for this bit of intellectual dishonesty, the pride of Arizona continued by interweaving business tax numbers in a discussion of personal taxes (an excerpt of the transcript covering the entire tax issue can be found here). McCain’s new approach included mentioning that business taxes in Ireland are only 11% while business taxes in the United States are the highest in the world at 35%. Unfortunately, this cover for previous intellectual dishonesty is also intellectually dishonest4. What McCain has actually done is use a pre-deduction rate as though it is the rate actually being paid. To Obama’s credit, he called McCain out on this and made note that U.S. businesses don’t pay anything close to 35% income tax. In fact, two-thirds of all U.S. companies haven’t paid any income tax for the last seven years and possibly for as long as five years previous to that. (Sources here, here, here, here, here, here, here, here, and here)5. [...]