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Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Monday, August 6, 2012

The Ten Most Profitable U.S. Companies Paid a 9% Federal Tax Rate

Linda Beale (Wayne State), Corporations Don't Need More Tax Breaks:

If you listen to the corporate lobbyists, and the right-wingers who plead their cases for them in Congress and in the media, you'd think that corporations are so heavily taxed that it is threatening their ability to continue to conduct business and be competitive in world markets. But is that really the case? This blog has often pointed out two obvious shortcomings in the corporate whine: first, the corporate statutory rate of 35% is honored in the breach--most corporations pay actual tax rates so significantly lower than 35% that the statutory rate is an illusion; and second, as far as global competitiveness is concerned, the corporate tax rate is the only significant tax that US corporations pay, whereas most other countries have both corporate income taxes and VAT taxes, often paid at each transactional stage of production.

A site called "NerdWallet" provides considerable information based on analysis of the financial statements of companies, providing greater transparency for investors and, lucky for us, for those of us interested in tax facts.   See, e.g., the NerdWallet study, Top Companies Paid 9% Tax Rate (July 24, 2012).

Because tax provision includes both domestic and foreign, current and deferred taxes, NerdWallet researched further to find how much was actually paid by these American companies to the U.S. federal government in the most recent tax year.  By dividing the current portion of federal taxes by pre-tax income, NerdWallet was able to calculate the percentage of these companies’ earnings that was paid to the U.S. government. For the ten American companies with highest earnings in the most recent fiscal year, this number averaged 9%. NerdWallet Study (emphasis added).

A press release about the study notes just how much corporate taxation has shrunk as a source of revenue in the US, as corporations pay lower rates than ordinary Americans.

A new NerdWallet study found the 10 most profitable U.S. companies paid an average of just 9% in federal taxes last year. These low rates are particularly shocking given that the official tax rate is 35%. The study also revealed that more than half of the 500 largest U.S. companies paid a lower tax rate than the average American.  NerdWallet press release (July 30 2012).

  1. Exxon Mobil Pre-tax Earnings: $73.3 Billion; Actual Taxes Paid: $1.5 Billion (2%)
  2. Chevron Pre-tax Earnings: $46.6 Billion; Actual Taxes Paid: $1.9 Billion (4%)
  3. Apple Pre-tax Earnings: $34.2 Billion; Actual Taxes Paid $3.9 Billion (11%)
  4. Microsoft Pre-tax Earnings: $28.1 Billion; Actual Taxes Paid: $3.1 Billion (11%)
  5. JPMorgan Chase & Co Pre-tax Earnings: $26.7 Billion; Actual Taxes Paid $3.7 Billion (14%)

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I recall seeing similar studies on many left leaning websites. The major flaw in the analysis is they are comparing US income taxes paid with worldwide income. Of course your are going to get a low rate. Should compare world wide taxes paid against worldwide income or compare US taxes paid against US source income. Granted US corporations pay tax on world wide income, though they get a foreign tax credit for taxes paid overseas, not a compete wash. But a comparison of world wide income vs US taxes paid is meaningless in any analysis.

Posted by: Joe | Aug 6, 2012 6:52:00 AM

In the last couple of election cycles, Prof. Beale has made contributions to the Democratic National Committee, John Kerry, and Barack Obama. Surprised?

Posted by: TexEcon | Aug 6, 2012 9:30:43 AM


Since the U.S. military is defending these companies around the world--protecting their international supply chains, overseas investments, etc.--at a cost of over $1 trillion per year!--

worldwide income versus U.S. taxes is the appropriate measure.

Companies play all kinds of games to manipulate the figures you cite.

U.S. source income can be whatever the companies want it to be, thanks to transfer pricing and other schemes.

And many foreign governments will "tax" companies and then offer them rebates, in order to reduce the taxes the companies have to pay to the U.S.

Arab countries and multinational oil companies have been playing this game for a very long time, re-characterizing oil leases as taxes to loot the U.S. treasury--with the complicity of advice from the U.S. state department.

Posted by: Anon | Aug 8, 2012 8:44:07 AM