Most U.S.-based multinational corporations paid lower U.S. taxes on their domestic profits than they paid to foreign governments on their foreign profits, according to a recent study.
The study, released late last month by the advocacy groups Citizens for Tax Justice and the Institute on Taxation and Economic Policy, examined 288 profitable Fortune 500 companies over a five-year period and found that 26 paid no federal corporate income tax in that time, 111 paid no federal corporate income tax in at least one of the last five years, and one-third paid a U.S. tax rate less than 10 percent over the same period.
“Corporate lobbyists incessantly claim that our corporate tax rate is too high, and that it’s not competitive’ with the rest of the world,” said Citizens for Tax Justice director Robert McIntyre, the lead author on the report. “Our new report shows that both of these claims are false. Most of the biggest companies aren’t paying anywhere near 35 percent of their profits in taxes and far too many aren’t paying U.S. taxes at all. Most multinationals are paying lower tax rates here in the United States than they pay on their foreign operations.”
While the statutory corporate federal tax income tax rate is up to 35 percent, the corporations scrutinized in the study paid an average effective tax rate of just 19.4 percent over the past five years, barely more than half. In addition, the report found that 111 of the companies enjoyed at least one year in which their federal income tax was zero or less. Twenty-six companies, including Boeing, General Electric, Priceline and Verizon, enjoyed negative income tax rates over the entire five-year period, despite combined pre-tax profits of $170 billion, according to the study.
The study was based on corporate annual reports and 10-K forms that companies file with the Securities and Exchange Commission. It is important to note, however, that such information frequently differs from the tax returns actually filed with the Internal Revenue Service, which are kept confidential.
“I’m not in a position to verify or not verify their methodology, but to the extent that reform means reform, it means everybody pays something,” said James P. Pinkerton, a former White House domestic policy adviser to Presidents Ronald Reagan and George H.W. Bush who is now one of the co-chairs of the RATE Coalition, a group lobbying to lower the corporate tax rate. “We’re for reform. We’re for the lower rate at the top end and also for broadening the base. That’s been our argument all along. A lot of people want a bipartisan solution. That’s the only way things will happen in Washington, and we understand that. So if reform means some people pay more, then some people will pay more. That’s what the American people will support. We want something that is not only enactable, but also sustainable in the court of public opinion. If people say that’s a fair solution, that resolves issues of American competiveness and if some companies end up paying more as a result of the reform process, then so be it.”
Of the 125 multinational companies in the study sample, two-thirds paid a lower U.S. tax rate than the rate they paid to foreign governments on their foreign profits. On average, their foreign effective tax rate was 12 percent larger than their U.S. effective rate. The total amount of federal income tax subsidies enjoyed by the 288 profitable corporations over the five years was $362 billion.
Wells Fargo topped the list of corporations receiving the most in tax subsidies, according to the report, getting more than $21 billion in tax breaks from the U.S. Treasury from 2008 through 2012. Pepco Holdings had the lowest effective tax rate of all the companies in the study, at negative 33 percent over the five year period.
Industry tax rates varied widely, from a low of 2.9 percent for utilities to a high of 29.6 percent for healthcare companies. Some companies within sectors fare worse than others. For example, Time Warner Cable paid 3.9 percent over five years, while Comcast paid 24 percent. More than half of the federal corporate tax subsidies received by companies in the study went to four industries: financial services, utilities, telecommunications, and oil, gas and pipelines.
“This nation faces important questions of how to fund pressing priorities, from education and health care to infrastructure and retirement security,” said Rebecca Wilkins, senior counsel for federal tax policy at CTJ, in a statement. “Reforming our tax code is necessary to ensure to we have a just tax system that raises the revenues we need.”
The report describes several corporate tax reform options, including ending the indefinite deferral of taxes on foreign profits and tax breaks for executive stock options.