WASHINGTON – The Government Accountability Office found that major U.S. companies aren’t making tax payments that amount to anything close to the 35 percent statutory corporate rate, considered the highest in the world.
According to the GAO, profitable U.S. corporations with at least $10 million in assets paid an average effective federal tax rate of 12.6 percent, just a bit more than one-third of the statutory rate, as a result of various deductions and protections found in the Internal Revenue Service code. Multinational corporations paid an effective rate of about 16.9 percent when state, local and foreign taxes were taken into account.
Tax reformers, including President Obama, have consistently called for a lowering of the 35 percent rate, citing it as contributing to a sluggish economy. But the GAO may give new impetus to efforts to enhance corporate tax deposits into the federal Treasury.
Corporate tax contributions have fallen steadily over the years, from 32 percent of federal tax revenues in the 1950s to 9 percent today. At the same time U.S. corporate profits have reached an all-time high. Despite corporations’ growing share of income, GAO reported that in 2012 corporate income taxes contributed only about $242 billion to federal tax receipts, while individual income taxes contributed nearly five times more at $1.1 trillion.
In a 2008 report, the GAO determined that nearly 55 percent of all large U.S firms reported no federal tax liability in at least one year between 1998 and 2005.
Sen. Carl Levin (D-Mich.), former chairman of the Senate Permanent Subcommittee on Investigations, who requested the report along with Sen. Tom Coburn (R-Okla.), said the report confirms suspicions that large U.S. corporations as a whole aren’t paying their fair share in taxes. Profitable companies, he noted, are paying taxes at a rate lower that the rate paid by teachers, firefighters and other workers.
“When some U.S. corporations use unjustifiable loopholes and offshore gimmicks to avoid paying Uncle Sam, their tax burden is shifted onto hardworking American families and small business,” Levin said.
Coburn said the report “underscores the need for comprehensive tax reform,” adding that the Treasury would benefit from lower rates for both individuals and corporations and the elimination of “loopholes” afforded big business.
“When some U.S. corporations use unjustifiable loopholes and offshore gimmicks to avoid paying Uncle Sam, their tax burden is shifted onto hardworking American families and small business,” he said. Creating giveaways and loopholes for corporations, he said, “is both anti-competitive and unfair to working families.”
Last May, the Subcommittee on Investigations conducted a hearing on Apple Inc., the giant technology firm based in Cupertino, Calif. The panel determined that Apple, using Ireland as a tax haven, has avoided paying taxes on $44 billion in income over the past four years. Timothy Cook, the company’s chief executive officer, said every technique utilized by Apple was legal and above board.
The committee found that various practices have allowed U.S.-based multinational corporations, like Apple, to amass an estimated $1.9 trillion in profits in offshore tax havens shielded from U.S. taxes. One study has estimated that offshore earnings stockpiled by Standard & Poor’s 500 companies using these strategies have increased 400 percent in the last decade.