TaxProf Blog

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

Saturday, July 29, 2017

These 7 Highly Taxed Companies Need Congress To Finally Act On Tax Reform

MarketWatch, These 7 Highly Taxed Companies Need Congress to Finally Act on Tax Reform:

Memo to Republicans in Congress: It’s time to move on.

Your efforts to strip insurance away from millions of Americans — I mean, reform Obamacare — are only making you look bad. And I’m not talking about the “mean” plan that the House passed that shows how many in the GOP lack basic compassion for their fellow Americans, or the infighting that’s making your party look directionless and weak-willed.

Honestly, as an investor, I could care less about all that. What I really care about is what you promised months ago: comprehensive tax reform....

Here are seven U.S. companies with tax rates of at least 35% that are hoping for your help:


Considering how connected the world is, it’s impossible for Verizon Communications Inc. VZ, +1.22% to be exclusively a domestic telecom player. However, its most recent 10-K notes that “The majority of Verizon’s cash flow is generated from domestic operations” — and also notes a 35.2% effective tax rate in fiscal 2016. That makes tax reform, if it happens, a juicy opportunity for this company. It’s also worth noting that any incentive for telecom infrastructure investment would also benefit Verizon, as would rolling back so-called “net neutrality” that could allow the telecom giant to prioritize its newly acquired digital properties Yahoo and AOL. There’s a lot for Verizon shareholders to like if Washington policies tilt its way in 2017....

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The claim that any high-tech company (let alone any major US corporation) is paying taxes at an effective rate of 35-37% is ludicrous on its face. The computations give by this author appear to be taken from the companies' securities filings, which ignore all time-value-of-money breaks in the tax code. We know from E. Cary Brown that allowing full expensing is the equivalent of taxing normal returns to capital at an effective rate of zero. Accelerated depreciation results in effective rates somewhere between zero and the nominal rate. The author of this piece simply doesn't understand what he is talking about.

This is not to say that tax legislation (I hesitate to use the word "reform" with this Congress) is unnecessary. But it's not necessary for the reasons the author gives.

Posted by: Theodore Seto | Jul 29, 2017 9:44:22 PM

Mr. Seto, you will need to extend your claim of zero taxation due to depreciation over time. As every accountant knows, accelerated depreciation merely borrows from Peter to pay Paul. Unless Verizon is doubling down year after year, it will eventually pay its taxes. Granted, depending upon the present value factor used, you can show a zero present value. But, it today's negative interest rate environment, I'm not sure that makes sense. Moreover, I doubt Verizon is continuing to spend that much money on equipment. My guess is most of their free cash flow is going to buy back stock.

Posted by: Dale Spradling | Jul 30, 2017 5:59:12 AM

You gotta love how Professor Oei characterizes allowing Americans the option to not buy insurance as stripping insurance away from them. I understand the purpose of the mandate, and can appreciate its merits, but does anybody care about fairness at all anymore? Are scholars all reduced to polemicists?

Posted by: Mike Petrik | Jul 30, 2017 10:41:30 AM

As has been the long-time convention on this blog, these are just excerpts from and links to notable news articles or commentary dealing with tax. The credit belongs to another! I’m just helping out as a taxprof community news aggregator, which probably doesn’t rise to the level of either scholar or polemicist, sadly. If I post something, it generally means I read it and found it worth a click (and probably also worth arguing over). --SYO

Posted by: shufly | Jul 30, 2017 1:28:44 PM

My apologies to Professor Oei. My complaint should have been directed to Mr. Reeves, who apparently is an admitted polemicist. Very sorry, professor.

Posted by: Mike Petrik | Jul 30, 2017 2:34:51 PM

No apology necessary, Mike. I appreciate your comments (and substantive complaints!) on these posts. --SYO

Posted by: shufly | Jul 30, 2017 8:07:42 PM