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Firms avoid taxes { October 20 2000 } Original Source Link: (May no longer be active)
http://www.washingtonpost.com/wp-dyn/articles/A41728-2000Oct19.htmlhttp://www.washingtonpost.com/wp-dyn/articles/A41728-2000Oct19.html
Big Firms Said to Avoid Minimum Federal Tax
By Albert B. Crenshaw
Washington Post Staff Writer
Friday , October 20, 2000 ; Page E01
With imagination and a little help from their friends in Congress, some of America's largest companies are again paying substantially less than the maximum federal income tax rate--sometimes nothing or less than nothing, according to a study released yesterday.
According to the report, 41 companies not only owed no tax, but received money back in at least one of the three years studied--1996-98--although they reported a total of $25.8 billion in pretax profits. "They made more money after taxes than before taxes," said Robert McIntyre, the principal author.
McIntyre, head of the Citizens for Tax Justice, did similar studies on corporate taxes in the 1980s. Those studies were part of the background that led to inclusion of an alternative minimum tax on corporations in the tax reform act of 1986.
His new report, released by the Institute on Taxation and Economic Policy, was sponsored by the Ford Foundation and other philanthropies. It found 24 companies--nearly one in 10 studied--received tax rebates in 1998 alone, including such household names as Texaco Inc., Chevron Corp., PepsiCo Inc., MCI WorldCom Inc., Goodyear Tire & Rubber Co. and General Motors Corp.
Texaco, for example, received a tax rebate of $67.7 million, which meant that it paid taxes at a rate of negative 37.2 percent on the $182 million in profit it reported in 1998.
The maximum corporate tax rate is 35 percent.
In dollar terms, the study found that tax breaks enabled the companies to reduce their taxes by $98 billion over the three years, with 25 companies receiving almost half of that amount. General Electric Co. topped the list, with $6.9 billion in breaks, which cut its tax bill by 77 percent over the three years.
Several of the companies said yesterday that they had done nothing wrong, and were engaging in businesses that Congress intended to encourage. Some also disputed the report's figures.
A Texaco spokesman, for example, called the report "a little bit misleading" because the rebates it cited were actually refunds related "to overpayment of federal taxes in previous years."
A GE spokesman also questioned the report's methodology, noting that of the $6.9 billion in breaks cited, $2.4 billion was deferred taxes "that we will pay."
McIntyre said the findings suggest that big companies have succeeded in recovering much of the ground lost to federal revenue collectors since the 1986 tax bill. That law eliminated or restricted a number of commonly used write-offs and imposed the alternative minimum tax to prevent corporations from eliminating their tax burden altogether.
The AMT has been weakened twice since then, McIntyre said, and companies are using such devices as accelerated depreciation, research credits and breaks for operations in Puerto Rico to reduce or eliminate their taxes.
He also pointed to stock options, which are not expensed to employees but become deductible to the company when the employee exercises them. They are a growing factor in tax reduction, he said.
Among industry sectors, oil and pipeline companies paid the lowest rate over the three years--12.3 percent on total profit of $32.9 billion--followed by electronics at 13.1 percent and paper and forest products at 13.9 percent.
Highest rates were paid by publishing and printing companies, 31.6 percent (The Washington Post Co. paid 32.8 percent); retailers and wholesalers at 27.6 percent; and gas and electric utilities at 21.1 percent.
Corporate taxes have fluctuated over the years as a share of all income taxes paid, but the trend has been generally downward. In the 1960s, corporations paid about a third of all income taxes--with individuals paying the rest, the report said. That figure fell to 25 percent in the 1970s and 15 percent in the early 1980s, climbed back to 19 percent after the Tax Reform Act passed, but it dropped back to 17 percent in fiscal 2000.
Some of that has been caused by the explosion in personal income among high-income individuals, but McIntyre said in general corporate taxes have not risen nearly as fast as profits.
The overall effective corporate tax rate in 1998 was 20.1 percent, up from the 14.3 percent of 1981-1985 but down from the 26.5 percent level shortly after passage of the 1986 reform bill, the report said.
McIntyre, a longtime critic of federal tax policy, got his numbers from annual reports of corporations, which he said "have become very difficult to read." He suggested that companies be required to disclose their U.S. and foreign tax payments clearly and specifically in their annual reports.
The report called the corporate income tax law "overdue for a deep examination of how we tax, or fail to tax, our major corporations." Current tax breaks amount to government allocation of capital by giving breaks to some industries and companies and not to others. He said these breaks often are won by better lobbying and not by economic merit, a practice that is going to hurt growth in the long run.
He suggested that Congress reinstate a tough alternative minimum tax and rethink the way stock options are treated.
The report is available at www.itepnet.org.
© 2000 The Washington Post
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