As Corporate Profits Reach Record Levels, Their Effective Tax Rates Decrease
July 18, 2013
American citizens are paying an increasingly higher percentage of taxes as effective corporate tax rates fall during a period of soaring profits. The key word here is effective, as in taxes actually paid by corporations to the federal treasury. (Advocates for cutting corporate tax rates cite the official government levies, not what corporations actually pay for the right to do business as US companies.)
What this means in plain English is that you and I are paying more to the government, on a relative basis, than big business, a lot more.
Long-time friend of BuzzFlash, Pulitzer Prize winning economic reporter David Cay Johnston explains how we are being hoodwinked by the “America can only remain competitive with lower official corporate tax code” arguments (made by DC politicians “rented” by corporations, according to Johnston):
Individual income tax payments have been rising fast since the economy began to recover, even though wages have hardly budged. But the same isn’t true for taxes for most corporations.
For the vast majority of America’s 5.8 million corporations, profits soared in 2010 — up 53 percent compared to 2009 — when the recession official ended at mid-year. Despite skyrocketing profits, however, their corporate income tax bills actually shrank by $1.9 billion, or 2.6 percent.
In an article in the National Memo entitled “Corporate Tax Rates Plummet As Profits Soar,” Johnston elaborates:
The effective tax rate paid by 99.95 percent of companies fell to 15.9 percent in the robustly profitable year of 2010, from 24.9 percent in the half-recession year 2009.
Those figures do not count the 2,772 companies that dominate the American economy. These giant firms, with an average of $23 billion in assets, own 81 percent of all business assets in America.
Their combined profits soared 45.2 percent to a new record in 2010, but their taxes rose just 14.8 percent, new IRS data show. Profits growing three times faster than taxes means their effective tax rates fell.
In 2010 these corporate giants paid just 16.7 percent of their profits in taxes, down from 21.1 percent in 2009. The official tax rate is 35 percent.
The Washington Chamber of Commerce meme is that corporations are being kept from helping to expand the US economy by high taxes that make them non-competitive in the world market. However, the stock market continues to flirt with record highs because big businesses are making big profits, distributing them to shareholders and in the form of executive compensation. The excess profits are generally not being spent to expand plants or staff in the US because individual Americans — squeezed between relatively stagnant wages (adjusted for inflation) and an increasing percentage of the tax burden (as compared to companies) — can’t afford to increase consumption. So the Chamber of Commerce meme is malarkey.
Many of the largest corporations sit on their profits (Apple being a prime example of this) or throw a bone of investment to the American economy for public relations purposes.
US corporations, in general, don’t need lower tax rates; they need to pay higher actual taxes given that the biggest of them don’t pay anywhere near their IRS codified tax percentage.
Johnston is not optimistic that the burden will start shifting from individual citizens to big business anytime soon. As he writes in his recent article:
Going forward, the Obama administration predicts that Washington will rely more on individual income taxes and less on corporate taxes.
Between fiscal 2010 and fiscal 2018, individual income taxes will rise from 41.5 percent of federal revenues to 49.8 percent, an increase of 8.3 percentage points, the president’s proposed fiscal 2014 budget shows. Corporate income taxes – assuming current statutory rates – are expected to grow by only 2.4 percentage points from 8.9 percent in 2010 to 11.3 percent of federal revenues in 2018.
What this amounts to is corporations, as a result of their bought and paid for elected officials in DC, are skimming from the Sunday donation plate as others put in their hard-earned dollars to pay the price for the infrastructure that allows US-based corporations to flourish.
It is vital to never forget one important fact. Although, the mainstream corporate media covers the economy as if it were one monolithic force, it is not.
The rich are richer than ever now. Their economy is growing more gluttonous by leaps and bounds as the working and middle class, in essence, subsidize them with tax loopholes.
Johnston explains the revolving door and politician for rent game in DC:
Those rents – er, donations and perks – also ensure that those appointed to regulatory agency boards do well after they leave office, provided they have been good servants to corporate interests. Tricks like making customers paytaxes to monopolies that are exempt from the corporate income tax are one way that those appointed to regulatory boards will do well when they leave the government payroll, as my book The Fine Print revealed.
The corporate giants quietly lobby for laws and regulatory rules that get little to no attention in the mainstream news.
GE spent $39.3 million just on Washington lobbying in 2010, more than $73,000 per senator and representative.
ExxonMobil has spent on average almost $23 million annually lobbying Washington in 2008 through 2010. Walmart has spent between $6.2 million and $7.8 million lobbying Washington each year since 2008.
Lobbyists for these and other corporations have lawmakers on speed dial. As for you, just try to get a face-to-face appointment with your senator or representative.
Many years ago, the late US Senator Paul Simon (D-Illinois) announced that he was not going to run again. I was with him at an event and asked him why he had decided not to seek another term. His answer was telling.
“Mark,” he said (to the best of my memory), “I spend 70% of my time fundraising and 30% of my time legislating. There’s nothing I can do. You get elected to a six-year term and immediately your staff has you fundraising for the next election. If some interest gives my campaign $20,000, my staff is going to make sure I answer if they call. If a guy in a union with a lunchbucket calls, he’ll get routed to an intern. I’ve tried to change that, but it just seems to end up returning to the fundraising scramble and attention to the big givers. I’m just sick of the little guy or woman not being able to get through to me.”
Simon was the last of a generation and retired with dignity. (He died in 2003.)
Now you can probably count on one hand the number of senators who don’t wear a “for rent” sign on them.
And corporations continue to see their effective percentage of tax liability shrink as we continue to see ours rise.