A dozen multinational corporations paid an effective tax rate of negative 1.5 percent on billions of dollars in profits while reaping billions in taxpayer subsidies.
A new study by the advocacy group Citizens for Tax Justice identified the 12 companies as American Electric Power, Boeing, Dupont, Exxon Mobil, FedEx, General Electric, Honeywell International, IBM, United Technologies, Verizon Communications, Wells Fargo and Yahoo. Together they reported $171 billion in profits over the 2008 to 2010 period, while getting $62.4 billion in tax subsidies. The release is part of a larger report that the group plans to release later this summer.
CTJ noted that President Obama has indicated that he wants to reduce or eliminate corporate tax subsidies, but use the increased revenue to lower the statutory corporate tax rate. Lobbyists for big business, however, have rejected the so-called “revenue neutral approach” and called for changes that would reduce corporate tax payments by trillions of dollars over the upcoming decade.
Among the companies on the list, over the 2008 to 2010 period, GE received $4.7 billion in tax benefits on top of its $7.7 billion in pretax U.S. profits. Exxon Mobil paid an effective three-year tax rate of only 14.2 percent, or 60 percent below the 35 percent rate that companies are supposed to pay. Over the past two years, however, Exxon Mobil’s net tax on its $9.9 billion in U.S. pretax profits was only $39 million, an effective tax rate of only 0.4 percent.
The study can be found at http://www.ctj.org/pdf/12corps060111.pdf.
19 Comments
All of the comments are very interesting.
If corps are actually putting money back into positive advancement of jobs and reinvestment great.
But then why do I feel like I'm being ripped off at the gas pump? Because record breaking profits aren't making me confident that people are lining their pockets on the backs of low and middle class struggling individuals.
The greed factor seems to come to mind. Yes we should all be able to make a profit - but kill the subsidies. They don't need them with the record profits they have.
And I agree that I would like to see the story show reasons instead of results that are blurred by not stating the hows to reach the zero taxes.
Posted by: Lenore | June 6, 2011 7:21 AM
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I am perplexed by this article....it appears to only address one side of an issue without exploring the real facts surrounding why corporations do not pay income taxes. The billions of profits are presumably GAAP determined which in many cases is significantly different than taxable income. Did the report analyze the differences between the two....they seem to indicate for Boeing, that it was all due to excess stock option benefits. Did they read the 10-K? Did the author of this article read the 10-K?
If you read Boeing's report it suggests that it's tax rate is substantially different than what the Citizens for Tax Justice indicate. In part, the 10-K provides the following:
Net income tax payments/(refunds) were $360, ($198) and $599 in 2010, 2009 and 2008, respectively.
Our effective income tax rate was 26.5%, 22.9% and 33.6% for the years ended December 31, 2010, 2009 and 2008, respectively. Our effective tax rate was higher in 2010, than 2009, primarily because pre-tax book income in 2010 was higher than in 2009 and because of an income tax charge of $150 recorded during the first quarter of 2010 as a result of the Patient Protection and Affordable Care Act, as modified by the Health Care and Education Reconciliation Act of 2010. This was partially offset by a tax benefit of $371 recorded during the fourth quarter of 2010 as a result of settling the 1998-2003 federal audit. Our effective tax rate was lower in 2009, than 2008, primarily because tax credits such as research and development credits represented a higher proportion of earnings before taxes due to the year-over-year reduction in earnings. The following is a reconciliation of the U.S. federal statutory tax rate of 35% to our effective income tax rate: (See 10-K for the explanation.)
It should be noted that the most significant reduction in the Federal Tax % for Boeing is the R&D credit.
One should also note that a huge part of Boeing's income tax provision, for book purposes, is deferred income taxes.....thus somewhere in Boeing's tax accounting, they are taking a larger benefit for tax purposes than GAAP. They also indicate a significant NOL carryover for tax purposes.....did CTF account for this in their article? There is an analysis of this in the footnotes as well.
The CTJ report shows that Boeings Federal rate was -.1% in 2010, -9.1% in 2009 and -1% in 2008. What is the difference?
I have looked at Boeing's 10-K and realy can't find their numbers.....granted, I have not spent more than a cursory amount of time on it too.
I have not looked at the other companies financial information that was reported in the CTJ article, so I will not comment on their respective situations.
However, I think it would be wise for Accounting Today to provide equal time on analysis and just not regurgitate a report by some organization.
Thank you for this outlet.
Posted by: MelvinBird | June 2, 2011 5:03 PM
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Your May 4, 2011 issue stated that 51% of individuals paid ZERO income tax. I do not believe you reported their rate of tax, which is obviously BELOW ZERO because of the EITC. You have also been reporting that the corporations in the United States pay more taxes than the corporations in other countries. How can an article from left wing-nuts get such coverage when it is so slanted to their purpose?
Posted by: Unknown | June 2, 2011 2:24 PM
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In addition to the 12 corporations covered in this posting, 47-51% of individuaks who fle Forms 1040 (or their equivalent)actually pay no taxes nd file only to get refunds back; the majority of these filers have deductible expenses, exemptions or credits that elimnate taxes or cause a negative tax due to child tax credits, etc.
The President's annual budget submission to Congress has about a 30-page section on the cost to the Treasury of every deduction, exemption, and cfredit for both individuals and corporations. Finanxciualy interestged and litetrate parties should download this so see the variety of incfredible things that reduce taxes. Whatever the social or economic usefulness of these items once was has likely long since passed. this list should be the starting point of tax simplification.
Moose8/23/37
Posted by: berttedwards | June 2, 2011 2:08 PM
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In the case of Exxon Mobil, it should be pointed out that we're paying huge tax subsidies to them at the same time that they are generating record profits (after all "job creation" expenses are taken into account), paying out record dividends to themselves AND engaging in a massive stock buy-back program (running off potential investment capital with no return other than an increased stock price for themselves). They are effectively placing our tax subsidies back in their own pockets, at the same timne that they're generating increasing margins for the gas that they sell us. How can anyone defend those subsidies? Why are we paying them subsidies while they put nothing back into the U.S. Treasury? I don't consider myself a liberal, but it amazes me that the Congressional Republicans absolutely went to the mat to defend those oil subsidies, at the same time that they claim to be the anti-deficit party.
Posted by: bill645 | June 2, 2011 1:44 PM
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Individuals are allowed to use NOL ( Net Operating Loss) carrybacks and carryforwards.
Posted by: dlzallestaxes | June 2, 2011 1:08 PM
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Oh please. How would the CTJ possibly know this. The tax returns of these companies are not made public and the tax information on their financial statements is as about opaque as lead. Furthermore, in order to get a true picture you would have to include all the payroll, property and local taxes, both domestic and foreign.
Posted by: colin@colincoopercpa.com | June 2, 2011 12:59 PM
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lammip:
So I'm hoping that when you say EVERYBODY, you also want the 49% of individuals who pay no income taxes to also begin paying?
Posted by: Pitbullll | June 2, 2011 12:47 PM
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How disappointing..... More implied leftist leaning demogoguery from Accounting Today.
Negative tax rate!?! How outrageous! But never fear: President Obama is on the case. Those eeevil Korporations are not paying their fair share! But he'll fix 'em!
Don't actual accountants see this for what it is: politically motivated drivel? Or does Accounting Today desire to compete with the Huffinton Post?
If taxable expenses exceed taxable income, you pay no tax. Throw in a few refundable credits and it's even better. What's the big deal? Isn't that an "investment" in the company and our economy for things like jobs, infrastructure, capital improvements? Or is it only considered "investment" if politicians take our money and lavish it on politically favored constituencies?
It would really be great if Accounting Today would lose the unprofessional liberal bent.
Posted by: Pitbullll | June 2, 2011 12:45 PM
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Great article that exposes the problems with the current tax code. Small and medium size business's struggle and are being taxed to death while companies earning billions get a free ride! Lobbying is truly paying off.
Posted by: mel4600 | June 2, 2011 10:18 AM
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The fundamental question is one of fairness. Do ALL corporations, big and small get the same "benefits" on their tax returns? As preparers of small company tax returns, try as we might, we are not able to get effective tax rates anywhere near as low as those reported here. This leard me to suspect that the value of those companies lobbying is quite high as they benefit disproportionately to the small businesses. We give great lip service to supporting small business as the engine of the economy, but scant real support. I would be in favor of a tax system that fairly taxed all but as we all know "fairness" is in the eye of the beholder.
Posted by: mgmcpa | June 2, 2011 9:54 AM
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Interesting headline story--why not investigate and report on the reasons behind the result rather than implication of the conclusion---facts and not talking points would be welcome!
Posted by: bob from elgin | June 2, 2011 8:57 AM
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The report appears to be comparing GAAP net income with current income tax expense or benefit. The current taxable income is missing if you want to make and apples to apples comparison.
Posted by: Serena CPA | June 2, 2011 8:36 AM
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The Alternative Minimum Tax (AMT) was developed so that profitable companies paid some tax no matter what, but that system has been gamed by the used of NOL carryforwards. Many corporations acquire small companies just for the net operating losses on their books.
The individual taxpayer does not benefit from the option of netting one year's losses against another year's gains. But we do get the privilege of subsidizing the multinational corporations' corporate welfare. This country will crumble if its corporate citizens continue to avoid paying their share. The infrastructure corporations need - an educated workforce, bridges and interstates, a standing military and national guard, a healthy citizenry, to name a few - are not free.
Posted by: Unknown | June 2, 2011 8:22 AM
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As far as Exxon is concerned they could have built a few new refineries with the money thus creating jobs (construction) and helping to keep the gas supply level in the states. Just gas today shot up after a drop in oil prices yesterday??? Go figure.
Posted by: kirch6240 | June 2, 2011 8:21 AM
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There is another way to look at this issue. I will first say that I am not a tea party proponent nor am I a conservative republican. That said, if these companies are taking these "tax savings" and investing them into capital i.e. hiring people, then I am not adverse to these "handouts" as the treasury will eventually get the money back in personal income tax. On the other hand, as I suspect, if these companies are just hoarding the excess cash, then they should not benefit from these breaks.
Posted by: beaudoin3028 | June 2, 2011 8:13 AM
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Just as disturbing is the large (millions) number of individuals who pull money from the tax system through credits. Why does our tax system pay out money it never had. Corporations at least create jobs.
Posted by: lmaginnis | June 2, 2011 8:04 AM
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Would someone explain how this is being done? How are these companies reporting substantial taxable income, and computing so small a tax. I know there are tax credits, but something major is going on that is not explained in the article. Are we comparing book profits to actual taxes paid in a period? Are they using net operating loss carryforwards?
Posted by: Nicodemus | June 2, 2011 7:42 AM
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This is a topic that all people should agree to help reduce our deficit, including most Democrats, Republicans, and Independents...that ALL companies must pay some tax no matter what. We cannot expect to eliminate the over $14,000,000,000,000 (14 trillion dollars) in debt without EVERYBODY paying something to solve the problem. This includes the idea of lowering the corporate tax rate, while eliminating exemptions and the ability to count subsidies as revenue.
Posted by: lammip | June 2, 2011 7:17 AM
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