Citizens for Tax Justice
Earlier this year, Berkshire Hathaway Chairman Warren Buffett made headlines by publicly decrying the stark inequity between his own effective federal tax rate (about 17 percent, by his estimate) and that of his secretary (about 30 percent). The resulting media firestorm has drawn welcome attention to unfair tax breaks that allow the richest Americans to avoid paying their fair share of the personal income tax. But these inequities are not limited to the personal tax. Our corporate tax system is plagued by very similar problems, problems that allow many of America’s most profitable corporations to pay little or nothing in federal income taxes.
This study takes a hard look at the federal income taxes paid or not paid by 280 of America’s largest and most profitable corporations in 2008, 2009 and 2010. The companies in our report are all from Fortune’s annual list of America’s 500 largest corporations, and all of them were profitable in each of the three years analyzed. Over the three years, the 280 companies in our survey reported total pretax U.S. profits of $1.4 trillion.
While the federal corporate tax code ostensibly requires big corporations to pay a 35 percent corporate income tax rate, on average, the 280 corporations in our study paid only about half that amount. And many paid far less, including a number that paid nothing at all.
Our report reveals which companies pay their fair share to support the country that makes their huge profits possible, and which companies don’t.
Many people will be appalled to learn that a quarter of the companies in our study paid effective federal tax rates on their U.S. profits of less than 10 percent. Others may be surprised to learn that an almost equal number of our companies paid close to the full 35 percent official corporate tax rate.
This is not an “anti-business” report. On the contrary, we, like most Americans, want our businesses to do well. In a market economy, we need managers and entrepreneurs, just as we (and they) need workers and consumers. But we also need a much better balance when it comes to taxes. Just as workers pay their fair share of taxes on their earnings, so should successful businesses pay their fair share on their success.
But today corporate tax loopholes are so out of control that most Americans can rightfully complain, “I pay more federal income taxes than General Electric, Boeing, DuPont, Wells Fargo, Verizon, etc., etc., all put together.” That’s an unacceptable situation.
Twenty-five years ago, President Ronald Reagan was horrified by a similar epidemic of corporate tax dodging. “I just didn’t realize that things had gotten that far out of line,” Reagan reportedly told his Treasury Secretary. And Reagan solved the problem, by sweeping away corporate tax loopholes with the Tax Reform Act of 1986.
But over time, Reagan’s 1986 decision to get rid of corporate tax subsidies and make our big corporations pay their fair share has been reversed. Ironically, that reversal has been led in large part by politicians who claim to be Reagan’s disciples and to oppose government subsidies that interfere with market incentives. Indeed, many of these purported fans of Reagan want to expand corporate subsidies and tilt public policy even further in favor of corporate tax avoidance.
There is plenty of blame to share for today’s sad situation. Corporate apologists will correctly point out that the loopholes and tax breaks that allow low-tax corporations to minimize or eliminate their income taxes are generally quite legal, and that they stem from laws passed over the years by Congress and signed by various Presidents. But that does not mean that low-tax corporations bear no responsibility for their low taxes. The laws were not enacted in a vacuum; they were adopted in response to relentless corporate lobbying, threats and campaign support.
This study is the latest in a series of corporate-tax reports by Citizens for Tax Justice and the Institute on Taxation and Economic Policy beginning in 1984. Our most recent prior report, issued in 2004, covered corporate taxes in 2001 through 2003. As in our previous reports, this new study includes some companies that paid substantial taxes and others that paid little or nothing. The methodological appendix at the end of the study explains in more detail how the companies were chosen and how their effective tax rates were calculated. The notes on specific companies beginning on page 53 add more details.