According to the Government Accountability Office, in any given year, at least 60% of US corporations surveyed paid no federal income tax liability for 1998 to 2005 (the years studied). That statistic includes corporations of varied sizes.
If the trends in the survey are accurate, nearly one quarter of large US corporations don’t pay any federal income tax at least half of the time. Large U.S. corporations are those with at least $250 million in assets or gross annual receipts of at least $50 million.
Even more interesting? Nearly three-quarters of large foreign-owned corporations operating in the US reported no tax liability for at least one of the seven years in the study. Foreign-owned corporations are required to file and pay federal income taxes if they are doing business in the US.
So how do so many corporation escape taxation? Deductions and credits. Corporations wipe out their tax liability by using tax credits or net operating losses (NOLs) from excess deductions. NOLs allow a company to deduct losses generated in previous years in a current year. In contrast, individuals, unless reporting business losses on their personal returns, are not allowed to carry forward federal income tax losses. In other words, if a company has a good year, it can offset taxable income from losses it faced in a bad year. If an individual has a bad year, the loss is wiped clean.
The GAO also noted in its report that taxable income in many corporations differed from profits reported to shareholders. Companies that are reporting no taxable income are still reporting profits to shareholders. This is an exercise in accounting, to be sure, but proof to some that the corporate tax structure needs to be fixed - and soon.
Corporate tax issues have been on the political agenda even before the report was released. Amid rising profits for companies and rising costs to taxpayers, both presidential candidates, Senators McCain and Obama, have vowed to close corporate tax loopholes. My bet is that no matter who becomes president, it won’t happen. And I’m not even cynical - just realistic (did you see those numbers?).
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Barack Obama, John McCain, corporate tax, tax, Government Accounting Office
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