Many Big Corporations Don’t Pay Taxes — Including Some Federal Contractors
By Deb Cupples on August 17, 2008 at 4:35 AM in Corruption, Tax stimulus package
Based on IRS records, a recent GAO report indicates that many corporations claimed to owe $0 in U.S. taxes from 1998 – 2005: roughly 28%-53% of large foreign-controlled and 23%-38% of large U.S.-controlled corporations. [The GAO considers a "large" corporation one with at least $250 million in assets or $50 million in gross receipts.]
This reminded me of a 2004 study by the Center for Tax Justice, which reviewed 275 of the Fortune 500 companies listed at the time. Of those 275 profitable companies, 82 (nearly one-third) of them had paid zero or less in U.S. taxes during at least one year from 2001-2003.
Below, I’ve listed just the 9 companies that paid zero (or less) in taxes during all three years (2001, 2002, and 2003):
| Company | Profits | Tax Paid | Tax Rate |
| Pepco Holdings | $725 million | -$432 million | -59.6% |
| ITT | $821 million | -$183 million | -22.3% |
| Unisys | $334 million | -$53 million | -16% |
| Principal Group | $2 billion | -$259 million | -12.8% |
| NCR | $708 million | -$41 million | -5.8% |
| Ryder | $318 million | -$10 million | -3.1% |
| Computer Sciences | $1.3 billion | -$31 million | -2.4% |
| Shaw Group | $276 million | -$6 million | -2.2% |
| Saks | $271 million | -$6 million | -2.2% |
When the study was done, the corporate tax rate was 35% of a company’s profits (i.e., 35% of money left over after all company expenses were paid, including executive salaries and bonuses).
According to the study, the 275 companies had combined profits for 2001-03 totaling $1.1 trillion. Just to give you an idea of how much money that is, the U.S. federal budget was roughly $2 trillion in both the 2001 and 2002 fiscal years.
If those 275 companies had paid the statutory 35% tax rate on their $1.1 trillion in profits, we taxpayers would have received about $370 billion. Instead, those companies (and the individuals running them) pocketed about $175 billion in tax breaks.
Given that our economy started having trouble in 2001 (after September 11th), our government could have done better things with that $175 billion, such as:
1) Paying down our national debt,
2) Paying for a significant part of the Iraq war, or
3) Giving bigger tax breaks to working families.
Instead, much of that $175 billion likely went toward multi-million-dollar salaries, bonuses and perks for company executives.
So, why did the Bush Administration insist on giving those tax breaks? One purported rationale was that tax breaks would encourage companies to make capital investments (like buying equipment) — which would generate business for other companies, which would help our nation’s economy.
According to the CTJ study, the tax breaks failed to serve their purpose: capital investments for the 275 companies overall declined by 15% from 2001-2003. Remember this the next time you hear a politician using sound bites to sell you on corporate tax cuts.
I suspect that the failure stemmed from politicians’ having given those tax breaks without actually requiring companies to make a certain amount of capital investments.
Given my interest in government contractors, I couldn’t help looking into which of the 9 companies in the table above had received big government contracts. It turns out that 5 of those zero-tax companies were among Government Executive magazine’s Top-200 Federal Contractor’s list for the fiscal years 2002 and 2003 (I didn’t find the list for FY 2001):
| Company |
Contracts |
Profits (2001-03) |
Tax Paid (2001-03) |
|
|
Pepco |
$216 million | $725 million | - $432 million | |
|
ITT |
$2.4 billion | $821 million | - $183 million | |
|
Unisys |
$1 billion | $334 million | - $53 million | |
|
Computer Sciences |
$8.6 billion | $1.3 billion | - $31 million |
|
|
Shaw Group |
$910 million | $276 million | - $6 million |
Note: some of the other 82 companies that paid $0 or less in taxes during at least one year from 2001-03 might have received government contracts. I checked only the 9 companies listed in the first table and only the Top-200 contractors that Government Executive lists.
It’s unconscionable that any profitable U.S. company would benefit from tax breaks and loopholes enabling it to pay $0 or less in taxes. That any zero-tax company also received millions (or billions) in tax dollars via government contracts adds massive insult to the taxpayers’ injuries.
The usual argument from corporate public-relations people (and corporate-connected politicians) is that tax breaks help our nation’s economy by stimulating job creation and investments.
The argument sounds reasonable, but consider some realities our nation has faced since the Bush Administration pushed for corporate tax breaks: e.g., our unemployment rate has grown, and tens-of-thousands of jobs have been cut or sent overseas.
Those facts, alone, suggest that relying on corporations to patriotically create jobs (simply because that’s what our nation needs) hasn’t worked very well.
If our politicians truly aim to improve our economy (by stimulating investments and creating jobs), then they should put conditions on the corporate tax breaks: i.e., we’ll give you X-million dollars in tax breaks if you create X-number of jobs.
I suspect that our politicians fail to attach appropriate conditions to tax breaks, because many of them take large campaign donations from corporate-tied people — i.e., from people who prefer to get tax breaks without strings attached.
Wouldn’t it be great if we ordinary taxpayers could reduce our tax bills by simply donating to politicians and submitting wish lists?
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Hillary often has talked about this. Halliburton and offshore office in some tropical paradise.
Running off to work right now… and just scanned the above, but it is a huge source of our deficit $$$ issue.
Clinton would be reigning in this mess, (just like Bill and Al did with runaway expenditures) and stopping the 100 dollar toilet seats and hammers.
Bush screwed the little people who pay every dime they are supposed to. No wonder we stay broke, we foot the whole tab and pay our bills as required of the proletariat class.
And Obama will continue the offshore movement of money as he strives to be the Leader of the world.
Probably just one of the reasons why a first term Senator with the thinnest resume in the history of US politics managed to raise million of $$$$. It isn’t because his Hopie Changie message — it is because of his hidden agenda and allegiance to his bestest friends paying his bills.
OK what will McCain do given the chance? Do you think he’ll go all mavericky on corporations and bust their asses?
Well there’s a shocker! Corporations are not paying their fair share of taxes.
As Leona Helmsley allegedly said ‘taxes are for little people’.
Thank you for exploding another government myth; that people earing the lowest salaries are responsible for this economy by demanding “higher wages”.
Obama’s life is that picture worth a thousand words when you compare his employment background to us “little people” who have struggled to remain solvent on what the government leaves them after taxes.
While many of us have the same typical (there’s that word again) college background, few of us could acquire the assets Barack Obama has from low paying service industry jobs and the expense of a Harvard Law School degree, practice law for only a short time before moving on to enter politics as a part time state Senator and law school adjunct faculty and yet end up with the money to buy a multi-million dollar mansion even with a typical working wife and help from wealthy friends without leaving a huge papertrail.
And in 1995 publishers wouldn’t have issued a big advance on an autobiography from an unknown person who had done nothing extraordinary in his life and didn’t write about his controversial friendships and who wouldn’t be noticed by the Democratic party elite for almost another decade.
His is a “win the lottery” life but who bought him the ticket? Looking at your list of 9 makes me wonder how much they have contributed to the Campaign Obama because I’m sure Big Business wants to keep living in the style they have become accustomed to and needs a candidate elected who will continue to supply it. We know how McCain and Clinton got to the top, Obama is the mystery. From his list of donors I’ve seen it has me asking the question, what’s the connection?
A lot of people felt “SORRY” for him so advanced him I’m sure.
With that slick tongue of his??
Wow Quite a presentation too btw!
Great! Lot’s O’Meat!
That is why I cannot vote for McCain or for Obama. They are both typical politicians. Neither has any idea what it is like to work for an hourly wage, or to support a family on an hourly wage. McCain married his money, and Obama was given his through his book deal. I haven’t figured out who I will vote for, but it won’t be either one of these two.
What the heck ? There’s a big difference between legally reducing one’s taxes and illegally dodging taxes.
The problem is a Congress that has create a baroque tax law filled with complex giveaways. The solution is to root the corruption out of Congress and simplify the tax code.
As for dodging taxes, the most egregious offender is Bobo, who pays 2% through a strange offshore deal (Netherlands ?) but goes around pretending he’s the Second Coming.
Gene – I take issue with the “Congress that has created a baroque tax law” point . . . pretty common knowledge that corporate lobbyists and shills work, even WRITE the legislation to their benefit and grease passage with vast “donations”. Until “We The People” can afford to buy representation, tax laws will continue to pillar the working person. (Any question why McCain wants his tax plan . . . Johnnie-Cindy will save over $373,000 a YEAR in taxes – and just how many “jobs” will THAT create?)
What are you talking about with the offshore deal?? I haven’t heard anything about that. Could you please provide some details?
Sorry – Bobo means Bono.
Rough night !
Statistics like this can be very misleading. A company might earn profits this year and not pay taxes because it had a huge loss last year and was able to carry that loss over. Also, corporate profits don’t go to executive salaries, or they wouldn’t be profits – profits are after salaries. Profits are paid out in dividends or get reinvested in the business to grow the company. Also, did the study include REITs? REITs don’t pay taxes, but their dividends are taxes as ordinary income. Are some of the profits repatriated capital gains? Because there was a provision in those years for companies to return profits from overseas subsidiaries and pay a reduced tax rate – that was to help get us out of the recession. So its not so cut and dried.
BTW there’s a political agenda to studies like this – that companies don’t pay their fair share. Companies pay not just income taxes, but also employment taxes and property taxes and lots of fees. And companies have choices – they can do business in lots of places. The most vibrant economies in the world have low tax rates or benefits for companies, for example Canada is eating our lunch because it has a better R&D tax credit. The simplified analysis of “greedy corporations are taking all of our money” is fueling brain-dead protectionist economic movements that will leave this country bankrupt. Remember the US receives about $2T of foreign investment every year. If that number ever goes to zero or negative than the dollar won’t be worth the paper its printed on.
This article, and several of the early comments are nothing short of absurd, and shows the level of ignorance (and lack of journalistic ethics) out there in America.
The numbers in both studies add up companies who paid no taxes in ANY year. This kind of statistical monkeying can make anything seem like an alarming trend. If you create a graph of all the Americans who poop in their pants in any one year of their life, you’ll get a number close to 100%, because babies crap in their pants, right? But the statistic does not reflect what’s happening across the land at any one point in time. (By the way, I believe you’ll find that this exact technique is outlined in a 20-year old book on how to lie on purpose with statistics).
Tristan is right about about the effect of loss carryforwards. Just look at that list: Ryder, NCR, Unisys, etc. Those are some of the biggest losers from the 1995-1997 slowdown. I believe those 3 went out of business in the late 90s. The more recent GAO study is no doubt reflecting loss carry-forwards from the 2000-2003 post 9-11 slowdown.
I’m not even going to detail the effect that depreciation allowances can have on reducing income and making it “seem” as if those evil corporations pay no income. That’s much bigger than loss carryforwards, but are people saying a company shouldn’t be able to write down aging plant and equipment? Sheesh.