The Associated Press reports today that more than two-thirds of corporations doing business in the U.S. (including foreign corporations) paid no federal corporate income tax between 1998 and 2005 (see AP story
here). This, on combined sales (not necessarily profits) of more than $2.5
trillion. About 25% of the non-paying corporations are considered large, C corporations--w
ith at least $250 million in assets and/or $50 million in receipts. If we're reading this correctly, these U.S. businesses alone, which are subject to a tax rate of 35% on income of more than $18.33 million (and potentially another 15% for excess or undistributed profits), have avoided billions in tax liability over the period.
In a recent Butt and ReButt comment, J.T. Twilley educated us about corporations "not really paying taxes," because they pass on those costs to consumers through higher prices. But according to the Government Accounting Office (GAO), roughly half of U.S. companies are set up as pass-throughs (e.g., subchapter S corporations, or partnerships), and thus taxes are paid by the owners or shareholders through personal tax returns. These companies are not the problem. Democratic Senators Byron Dorgan (ND) and Carl Levin (MI) claim too many large corporations used loopholes and other questionable (illegal?) methods to avoid paying any taxes at all.
I will be shocked if our pro-big-busines
s readers don't have some explanation for how this is either acceptable or just "not a real problem." A subject for future debate, here?
Posts
7 comments:
You're darned skippy, it's a good subject!
Exactly. Corporations don't pay taxes. One way or the other. If those transfers between subsidiaries or other "loop holes" were not used to reduce those corporations' tax liability, then those corporations would have offset paying those taxes another way -- such as raising prices to consumer or laying off workers. The point is corporations are going to work to keep their bottom line as big as it is.
As far as the revelation that many businesses were paying taxes through personnel income tax because they were more likely being orgainzied as LLCs or Schedule whatsits. Those owners/partners in those businesses expect a return on their investment and chance in starting a business. They make the same decisions that bigger businesses do in regards to their bottom line. Maybe they don't hire another worker and make their staff work harder without raises, or maybe they raise their prices, or maybe they actually do take the taxes out of their bottom line.
The schedule S and LLCs are more likely to be smaller businesses than the large corporations accused of using loopholes. Thus, those smaller corporations may not be able to raise their prices, especially if they are a "mom and pop" or regional business. But is it these small businesses struggling to make it you want to put out of business. Together they employ many more people than the big corporations.
Don't forget decisions have impacts onother decisions. So when Democrats "close" these loopholes, don't start complaining about the evil corporations causing lines at the unemployment office to increase. The Democrats should look in the mirror, instead.
j.t. twilley...whoa, Nellie!
Two major points. First, nothing in the post said anything about the partnerships and subchapter S corporations doing anything wrong. They were simply the groups that helped explain some of the figures for companies that filed no federal tax returns. Those companies DID pay taxes, they just did it through their owners' personal returns, and were not required to pay separate federal corporate tax returns . I've owned several subchapter S businesses; I know how it works. You wasted two whole paragraphs of verbiage, there.
Second, closing tax loopholes is not a strictly Democratic ideal. Lots of people from all parties agree that tax loopholes are a bad thing (the word loophole, itself, has a negative connotation). The argument that corporations don't pay taxes is 1) incorrect (it's only 2/3 of them that don't); and 2) apparently, a loosely veiled attempt to say "corporations shouldn't pay taxes." Why? Because your argument boils down to, "if we try to make corporations pay who don't currently, they will find another way not to pay--so stop trying to make them pay." That's a patently ridiculous and tautological argument. If you think they shouldn't have to pay, then just say so.
Ah, where's Steve Forbes when you need him?
Loopholes - Dano is right, the word definitely has negative connotations. I prefer "tax cheating strategies." At least it's honest.
If we go, as one day I think we will (Kicking and Screaming, no doubt) to a flat tax system with basic equity, then everyone's tax rate will subsequently drop and revenues will not only be sustainable, but predictable.
How about flat tax as a debate topic for the blog? What say thee, people?
Good idea, Reed...I added it to our possible future ideas list.
RIGHT ON j.t.
Now if we could just get the average Joe to understand this concept.
Harkleroad, not agreeing is not the same as not understanding.
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