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Most companies dont pay taxes

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Posted on Wed, Apr. 07, 2004

Most companies don't pay taxes

Using losses, improper inter-company pricing arrangements and accrued tax credits, fewer than half of U.S. corporations paid taxes in the past 11 years.

Bloomberg News

A majority of U.S. corporations haven't paid income tax in any year since 1989, as they used accounting strategies to duck the 35 percent corporate tax rate, the General Accounting Office reported in Washington.

The congressional auditing agency said that 63 percent of all U.S. companies used a variety of legal -- and some illegal -- methods to zero-out their tax liability between 1996 and 2000. During the same period, 94 percent of U.S. corporations reported tax liabilities of less than 5 percent. Similar results were found for the period 1989-1995 in a previous GAO study.

''Too many corporations are finagling ways to dodge paying Uncle Sam, despite the benefits they receive from this country,'' said Michigan Democratic Senator Carl Levin, 69, who requested the GAO report.

Democratic presidential candidate John Kerry, 60, has made corporate tax behavior a theme of his campaign. The four-term Massachusetts senator is targeting rules that let companies avoid tax on foreign profits until they return them to the United States.

''This helps make Kerry's point about deferral, but there is a larger point about restoring compliance with the tax laws,'' said Donald C. Alexander, former Internal Revenue Service commissioner. ``Eager to make or exceed their earnings targets, CEOs put pressure on their CFOs who put pressure on tax directors to change tax departments from compliance centers to profit centers.''

Companies use losses, improper inter-company pricing arrangements, and accrued tax credits to reduce or eliminate their tax bills, the General Accounting Office said in the study, reported by the Wall Street Journal Tuesday.

Overall, the report said that more foreign-owned corporations avoided taxes between 1996 and 2000 than their U.S. competitors -- 71 percent to 61 percent, respectively. When the study focused on larger corporations, defined as those with more than $250 million in assets or $50 million in gross receipts, tax avoidance by U.S. corporations outpaced foreign-owned companies.

In total, foreign-controlled corporations paid an average of $11.88 per $1,000 of gross receipts in 2000, the study said. U.S. corporations paid an average of $14.75 per $1,000.

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