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August 12, 2008
GAO: 2/3 of Corporations Pay Zero Federal Income Tax
The Government Accountability Office today released Comparison of the Reported Tax Liabilities of Foreign- and U.S.-Controlled Corporations, 1998-2005 (GAO-08-957), issued in response to a request from Senators Carl Levin and Byron Dorgan. From Sen Levin's press release:
Most corporations doing business in the United States pay no federal income tax to the federal government ... The report says that two thirds of both American companies and foreign companies doing business in the United States end up avoiding all income tax obligations to the federal government despite corporate sales totaling $2.5 trillion.
The report discloses that each year from 1998 to 2005, an average of 68% of the foreign companies doing business in the U.S. paid zero federal income taxes. During the same period 66% of U. S. domestic corporations paid no federal income taxes to the federal government.
In 2005, 28% of large foreign companies (over $250 million in assets or $50 million in sales) doing business in the U.S. paid no taxes even though they reported $372 billion in gross receipts that year. This amounts to 998 companies. 25% of the largest U.S. corporations had $1.1 trillion in gross sales in 2005 and yet paid no federal income taxes for the year.
Press and blogosphere coverage:
August 12, 2008 in Gov't Reports | Permalink
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Tracked on Aug 13, 2008 10:44:31 AM
Comments
Your quote from another source, rather than an independent review of this report, suggests that you haven't read the report. The cited average percentages for FCDC's and USCC's ignores the larger discrepancies between the percentages for large FCDC's and USCC's in Table 1.
The report itself was intended to compare foreign corporations with domestic corporations, to determine whether there was any significant difference between the two groups in terms of corporations that reported no tax liability. The report's data is limited to that very narrow question, and doesn't even scratch the surface on the questions of why these numbers are what they are.
What disturbs me is how the very limited data presented in this report is being used to trumpet what seems to be nothing more than a politically motivated smear against big bad corporations. The implication is that either a) our tax laws are too lenient on evil corporations; or b) the evil corporations are all liars and cheats or both. These implications are not, however, supported by any data whatsoever in this report.
Posted by: Carol Cooper | Aug 12, 2008 11:14:14 PM
Were S corporations included in this "study?" If so, it is very misleading. CNN's article tonight has the following quote: "Generally, many small firms, because they do not have shareholders, are able to shift corporate income to individual income." I chuckled when I read that and even though it is clearly wrong, I wondered if they were trying to indicate that S corporations were included.
Posted by: Posey | Aug 13, 2008 12:23:18 AM
The media reports on this were all over the map, I heard some reports that were just funny, and some just gross.
I haven't read the report yet but at least some of the reporting suggests this study included S-corps and LLCs, which is bizarre.
Any report indicated there is something in the report focused on the "Fortune 1000" corporations, which might be more illuminating.
When summer is over I'll read this, but not when the fish are biting.
Posted by: save_the_rustbelt | Aug 13, 2008 9:00:09 AM
The stats posted are useless. We are talking about INCOME tax. Not a Revenue tax. Not a Gross Receipts tax. Not a Sales tax. An INCOME tax.
To make the stats useful, lets look at how many of the companies had net income with no carryforward of losses from prior years and didn't pay income tax.
Posted by: Chad Bordeaux | Aug 13, 2008 9:11:28 AM
Chad -- the study notes that most of the corps studies had no current taxable income (eg, -0- income before the NOL carryover).
re: S-corps: the GAO isn't some gaggle of morons. I'm sure they didn't look at LLCs.
Finally, if we're looking to see if the corps are getting away w/ not paying taxes but should be paying, I'd think the data set we'd want is a GAAP to tax comparison.
Posted by: jpe | Aug 13, 2008 1:56:10 PM
For many years, if not a few decades, companies have been shifting income producing operations and assets overseas, along with the profits that derive from those assets and operations. From what I've observed at some of the largest accounting and law firms, the predominant question that seems to comsume the most time and money is, "how can we shift your company's profits overseas while still exploiting the US market with its abundant customers in the most operationally efficient manner?"
Indeed, even many of the foreign acquisitions of big US companies of late seem to be driven, in part at least, by the tremendous reduction in US taxation that will happen over time with foreign ownership. Before the foreign acquisition a US company is taxed on its worldwide earnings. After a short time when the worldwide operations of the combined companies are rearranged, future profits are maximized in low-tax jurisdictions and the profit reported in the US will be minimized to the "selling" profit, while the "distribution" profit, the "technology" profit, the "marketing" profit and the "manufacturing" profit will be earned overseas whenever and whevever possible.
A college professor told our class one day that "a page of history can sometimes explain 40 pages of statutes."
Posted by: StaceyP | Aug 13, 2008 4:26:17 PM
