Paul L. Caron
Dean


Friday, April 15, 2016

GAO:  Two-Thirds Of All Active Corporations Paid Zero Federal Income Tax

GAO (2016)Government Accountability Office, Most Large Profitable U.S. Corporations Paid Tax but Effective Tax Rates Differed Significantly from the Statutory Rate (GAO-16-363):

In each year from 2006 to 2012, at least two-thirds of all active corporations had no federal income tax liability. Larger corporations were more likely to owe tax. Among large corporations (generally those with at least $10 million in assets) less than half—42.3 percent—paid no federal income tax in 2012. Of those large corporations whose financial statements reported a profit, 19.5 percent paid no federal income tax that year. Reasons why even profitable corporations may have paid no federal tax in a given year include the use of tax deductions for losses carried forward from prior years and tax incentives, such as depreciation allowances that are more generous in the federal tax code than those allowed for financial accounting purposes. Corporations that did have a federal corporate income tax liability for tax year 2012 owed $267.5 billion.

GAO

These reasons also explain why corporate effective tax rates (ETR) can differ substantially from statutory tax rates. ETRs attempt to measure taxes paid as a proportion of economic income, while statutory rates indicate the amount of tax liability (before any credits) relative to taxable income, which is defined by tax law and reflects tax benefits built into the law. The statutory tax rate on net corporate income ranges from 15 to 35 percent, depending on the amount of income earned. For tax years 2008 to 2012, profitable large U.S. corporations paid, on average, U.S. federal income taxes amounting to about 14 percent of the pretax net income that they reported in their financial statements (for those entities included in their tax returns).

When foreign and state and local income taxes are included, the average ETR across all of those years increases to just over 22 percent. GAO also computed ETRs that combine large profitable corporations and those large corporations with current year losses, which pay little if any actual tax. Over tax years 2008 to 2012, all large corporations—profitable and those that reported current year losses—paid 25.9 percent of their pretax net income in U.S. federal income taxes, and 40.1 percent when foreign and state and local taxes are included. Including corporations with losses results in a more comprehensive estimate, but makes the results difficult to interpret because ETR is not meaningful for a corporation in a year in which it has a net loss. GAO could not examine the variation in ETRs across corporations with the aggregated data available, although GAO's prior work suggests that ETRs are likely to vary considerably.

Tax Policy Blog, Some Corporations Pay Zero Federal Taxes – and There’s No Problem With That

https://taxprof.typepad.com/taxprof_blog/2016/04/gaotwo-thirds-of-all-active-corporations-paid-zero-federal-income-tax.html

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Comments

If anti-business warriors get upset that corporations follow tax law, then demand that "corporate welfare" like accelerated depreciation be stopped and watch what happens to the jobs and economy that tax incentives were designed to help. Only problem is that such complainers understand the economic effects of tax incentives no better than economic effects of raising minimum wages to new heights.

Oh, and might as well take away their precious "green energy" corporate welfare, too. >> "Taxpayers Are Footing Bill for Solar Project That Doesn’t Work"

Posted by: Woody | Apr 15, 2016 7:43:22 AM

I am not a tax guy, but I can tell this is misleading, something a politician will run with on a commercial. What sort of corporations are we discussing here? What if a sole proprietor with under 100K in revenue decides to incorporate? And the corporation pays no taxes? Is that in the data here? Anyone with a decent CPA, not Block or Hewitt, can take advantage of the tax code and limit their liability.

Posted by: Captain Hruska Carswell, Continuance King | Apr 15, 2016 6:22:23 PM