How Corporations Have Mastered the Art of Not Paying Their Fair Share of Taxes
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Nothing better shows corporate control over the government than Washington's basic response to the current economic crisis. First, we had "the rescue", then "the recovery". Trillions in public money flowed to the biggest US banks, insurance companies, etc. That "bailed" them out (is it just me or is there a suggestion of criminality in that phrase?), while we waited for benefits to "trickle down" to the rest of us.
As usual, the "trickle-down" part has not happened. Large corporations and their investors kept the government's money for themselves; their profits and stock market "recovered" nicely. We get unemployment, home-foreclosures, job benefit cuts and growing job insecurity. As the crisis hits states and cities, politicians avoid raising corporate taxes in favour of cutting government services and jobs – witness Wisconsin, etc.
Might government bias favouring corporations be deserved, a reward for taxes they pay? No: corporations – especially the larger ones – have avoided taxes as effectively as they have controlled government expenditures to benefit them.
Compare income taxes received by the federal government from individuals and from corporations (their profits are treated as their income), based on statistics from the Office of Management and the Budget in the White House, and the trend is clear. During the Great Depression, federal income tax receipts from individuals and corporations were roughly equal. During the second world war, income tax receipts from corporations were 50% greater than from individuals. The national crises of depression and war produced successful popular demands for corporations to contribute significant portions of federal tax revenues.
US corporations resented that arrangement, and after the war, they changed it. Corporate profits financed politicians' campaigns and lobbies to make sure that income tax receipts from individuals rose faster than those from corporations and that tax cuts were larger for corporations than for individuals. By the 1980s, individual income taxes regularly yielded four times more than taxes on corporations' profits.
Since the second world war, corporations have shifted much of the federal tax burden from themselves to the public – and especially onto the middle-income members of the public. No wonder a tax "revolt" developed, yet it did not push to stop or reverse that shift. Corporations had focused public anger elsewhere, against government expenditures as "wasteful" and against public employees as inefficient.
Organisations such as Chambers of Commerce and corporations' academic and political allies together shaped the public debate. They did not want it to be about who does and does not pay the taxes. Instead, they steered the "tax revolt" against taxes in general (on businesses and individuals alike). The corporations' efforts saved them far more in reduced taxes than the costs of their political contributions, lobbyists' fees and public relations campaigns.
At the same time, corporations also lobbied successfully for many loopholes in the tax laws. The official federal tax rate on profits is now around 35% for large corporations, which theoretically have to pay additional state taxes on their profits and local taxes on their property (land, buildings, business inventories, etc). Those official and theoretical tax obligations have been used to support conservatives' claims that corporations pay half or more of their profits to federal, state and local levels of government combined. However, because of loopholes, the truth is very different. The actual tax payments of corporations, and especially large corporations, are far lower than their official, theoretical obligations.
The most comprehensive recent study of what larger corporations actually pay by three academic accountants – professors at Duke, MIT and the University of North Carolina – gets at that truth. It examined a large sample of corporations. Their average turned out to be a rate of total taxation (federal, state and local combined) below 30 %. The study concluded: