Monday, October 16, 2017

How much less should corporations pay in income tax? — the bitter truth about who really shoulders America's tax burden

Nothing we have seen about proposed tax cuts indicates any significant relief for working Americans. They do significantly cut taxes for the rich. And, unless every tax "loophole" benefit is closed, we must ask, how much less can corporations pay in taxes?

The answer is, less than none. Following are some corporations reported as paying no net income tax over the last eight years. We checked their annual reports and SEC filings for 2016 to get a better sense of the facts.[1]:

  • Ameren — $1,381 million operating income in 2016, resulting in a $2 million Federal income tax benefit
  • Atmos Energy — $350.1 million net income in 2016, $7.8 paid in all income taxes, all jurisdictions, an effective rate of 2.2% at most (no pun intended); by comparison, Atmos paid $154.7 million in interest alone
  • General Electric — $9,815 million earnings in 2016, and quoting from the annual report: "The consolidated income tax rate for 2016 was (5.1)%." — including a $2,646 million Federal income tax current year benefit
  • International Paper — $2,202 million operating profit in 2016; their annual report lists current year "provision" of $31 million for Federal income tax, none for state and local, and $76 million for non-U.S. taxes' $31 million tax on $2,202 million income is an effective rate of 1.4%
  • NextEra Energy — $3,005 million net income in 2016 plus $1,383 in Federal income tax "income"!
  • NiSource — $351 million net income in 2016, plus $12.9 million in positive Federal income tax "effect"
  • PG&E Corp. — $2,729,147,007 net operating income in 2016, including $102,414,099 paid in Federal taxes — a 3.75% effective rate — but more than offset by $537,759,015 income in "other taxes"
  • Sempra Energy — $1,370 net income in 2016, includes income tax benefit of $181 million

We are not experts on politics, but we cannot see how major corporations which receive millions of dollars in income tax benefits added to their profits could support a "simplified" tax code as part of any tax cut and/or reform package. Can anyone imagine GE willingly giving up billions in cash handed to them by the American taxpayer and paying billions more in actual taxes?

In reality, we cannot see any support in corporate America for cuts + simplification. The U.S. government's own 2013 study on the data most recently available[2], indicated that the sum total of profitable American corporations pay an effective tax rate of only 13% on their combined domestic and international profits. Adding all unprofitable corporations to the count raises that effective rate to about 22%. Our own government disproves the current contention that corporations "pay 35% Federal income tax" and are desperate for a "friendlier tax environment."

The irony is not lost on us. If anticipated tax legislation closes loopholes to offset lowering the corporate income tax rate from 35% to 20%, billions of dollars in corporate profits will evaporate overnight and, while individual corporate income taxes paid vary considerably, the overall effective corporate tax rate for profitable companies will rise from 13% to 20%, a 50% increase.

Who really pays the most income tax?

Economic growth does not trickle down. Tax cuts to corporations and the wealthy have proven to have no positive effect on wages or economic growth. Demand stimulates growth. More disposable income and more consumers drive demand — that is, more money in the pockets of working Americans to spend on goods and services, and more working Americans to bootstrap growth. To stimulate our economy over the next decade, we need to:

  1. return more money into the pockets of working Americans by reducing the proportion of income tax paid by individuals versus corporations, focusing on lower- and middle-income individuals and families, those most likely to spend a larger portion of their income on goods and services; and
  2. counter the aging of America; baby-boomers will be collecting their hard-earned (and paid for!) Social Security and Medicare benefits, spending less as they economize in their retirement; the U.S. will need to encourage, not limit, immigration to expand the ranks of working Americans — this is our only chance to achieve the kind of otherwise unrealistic economic growth which the Trump administration is projecting in order to offset their proposed tax cuts — which independent non-partisan analyses confirm do little, if anything, for the average working American.

Why has our economic growth not tracked higher growth economies, whether China or Japan? The average U.S. hourly wage, adjusted for inflation, has been stagnant for forty years. There has been no wage growth which could contribute to economic growth. (And the Reagan era tax cuts actually drove down wages!) Economic studies tie our historical economic growth to our population growth: the post-war "baby boom" and, in turn those baby-boomers having their own families. History proves that corporate tax cuts and greater profits go into the pockets of investors and stockholders, not into higher hourly wages or improved worker benefits. The only tax-based stimulus which can drive near- to medium-term economic growth is to put more money back into the pockets of America's consumers — individual taxpayers. A re-apportioning of tax burden is long overdue: individuals have been contributing 80% of all Federal income tax revenue since the 1980's. Over time, we've gone from individuals and companies contributing equal shares to individuals now paying five times what corporations pay.

Following is our analysis of historical data published by the U.S. Office of Management and Budget (OMB). Estimates for 2017 and beyond are based on budget projections by the Trump administration.

Urge your Congressional senators and representatives:

DO enact tax cuts which directly benefit working Americans — promote consumer demand to drive economic growth
DO encourage immigration — only by embracing more individuals and families into the American dream can we sustain and grow it for all
DON'T enact tax cuts for companies and the wealthy based on the false claim those benefit hourly workers
DON'T cut legal immigration to half its current level based on the false claim that "immigrants take away jobs from Americans"

Read more

  • Cohen, Patricia. Profitable Companies, No Taxes: Here’s How They Did It, The New York Times, 9 March 2017, accessed 14 October 2017. LINK

[1]A number of outlets reported on the original list. We chose it because it examined the net tax effect over a longer period, not just the prior year — which could differ significantly from the eight-year average. We then reduced the list to corporations we confirmed paid negative to minimal Federal income tax in 2016.
[2]CORPORATE INCOME TAX: Effective Tax Rates Can Differ Significantly from the Statutory Rate GAO-13-520: Published: May 30, 2013. Publicly Released: Jul 1, 2013., U.S. Government Accountability Office. LINK
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