Corporations are making record profits. But 111 profitable Fortune 500 companies paid zero federal income taxes in one or more of the past five years, according to a recent report by Citizens for Tax Justice. What’s worse – 26 of them, including Boeing, General Electric and Verizon, paid nothing over the entire five-years. Astoundingly, they got tax refunds instead.
General Electric, which in the past has been the focus of media attention because of its record of paying an extremely low income tax rate, provides a vivid example. GE earned a whopping $27.5 billion in profits between 2008 and 2012, but claimed $3 billion in tax refunds – a federal income tax rate of negative 11 percent.
Put another way, GE paid less in federal income taxes than you paid over five years.
There is talk in Washington about overhauling the tax code. Corporate lobbyists are decrying the top corporate tax rate of 35 percent. They want you to focus on what corporations are supposed to pay instead of what they really pay. That’s because many corporations pay a lot less – averaging little more than half the top rate – 19.4 percent for all 288 companies in the Citizens for Tax Justice report.
CEOs inevitably claim that their companies pay every penny they owe and they are doing nothing illegal. That’s the problem – it’s possible (but not guaranteed) that what they’re doing is perfectly legal. That’s because over the years corporate lobbyists have drilled so many holes into our tax code that it is like Swiss cheese.
Some of the loopholes defy logic – like the tax break for companies that give their CEOs lavish “performance based” bonuses. Others are outrageous – like a tax break for companies that shuttle their executives in corporate jets. And some are an insult to working Americans – like a special low tax rate for Wall Street hedge fund managers.
But one of the most outrageous tax loopholes of all is the one that has helped GE be such a good tax dodger. It enables Wall Street banks and other corporations with large financial units – like GE – to make it appear that profits earned in the United States were generated in offshore tax havens like the Cayman Islands. It’s as if you laundered your paycheck through the Caribbean to avoid paying U.S. taxes.
Lobbyists are twisting arms on Capitol Hill to try to save the “GE Loophole,” which expired last year. A recent report by Americans for Tax Fairness and Public Campaign shows that at least 292 lobbyists pressed members of Congress on this issue in the past three years. GE alone pays 48 lobbyists to lobby for the loophole. It cares so much about the loophole that its tax department chief once got down on his knees to pretend to beg Congressional staffers to save it.
Last week, a U.S. Senate committee voted to renew the GE Loophole and a raft of other questionable tax breaks, including breaks for owners of thoroughbred racehorses and NASCAR racetracks. The Senate will vote on the tax package in May. If it passes, the entire $86 billion cost will be tacked onto the budget deficit. You will end up paying part of the bill.
Why should you care about the GE Loophole or about some big corporations paying nothing in federal income taxes? It’s because when corporations refuse to pay their fair share, you end up paying higher taxes or getting less for what you pay. You get a worse transportation system, a poorer educational system, less reliable public safety, a weaker national defense, a less secure retirement and a bigger budget deficit.
So this April 15, don’t be fooled by the lobbyists and spinmeisters who argue that corporations should be paying less in taxes. Many are already paying far less than they should, and some are paying nothing at all. Let’s plug up those corporate tax loopholes, like the one that gives huge tax breaks to companies that ship jobs and profits offshore. It’s time they pay their fair share -- just like the rest of us.
Editor's Note: Frank Clemente is executive director of Americans for Tax Fairness.