The Unspeakable Path to Balanced Budgets

Over most of the country we hear the same refrain: tax revenues are shrinking, budget cuts will be needed, and the public will have to pay a little more. A recent US News and World Report article concludes that at least 20 states (and 35 to 40 by 2009) are facing budget shortfalls. The only options, according to the article, are to raise taxes or cut spending.

A good example is Chicago, where an increase in the Cook County sales tax awarded the city the dubious distinction of the highest sales tax in the nation, at 10.25 percent. There seemed to be few alternatives to this further regressive tax on average Americans. In May 2007, Illinois Governor Blagojevich tried to increase business taxes, but his efforts were shot down without a single supporting vote from the Illinois House.

The sense is that we shouldn't tax the corporate 'lifeblood' of America. A rudimentary analysis shows that indeed we do not tax big business, but not for lack of trying. A 2007 Business Week review revealed that many of our largest corporations are paying an extremely low percentage of federal income taxes. In the five-year period from 2002 to 2006, CMS Energy, Chesapeake Energy, and Boeing paid an average tax of less than 1 percent, and well-known firms such as Amazon, Yahoo, Broadcom, Southwest Airlines, and eBay paid an average tax of less than 4 percent. The reasons are varied and notable. Boeing has taken advantage of now discontinued tax breaks for selling outside the country. Broadcom was one of many companies that produced and sold billions of dollars worth of goods in tax-favorable countries such as Singapore. Tax-avoidance winner CMS Energy wrote off a great amount of bad investments, but added, through CFO Thomas Webb, "We will get back to paying taxes again, and we look forward to that day."

By combining the low-tax figures with the annual Fortune 500 rankings of revenue-producing firms, the extent of the tax loss to the American people can be gauged. If the top 86 tax-avoiding companies had paid as much tax in 2006 (26 percent) as the average S&P 500 company, a tax return to the public of $221 billion would have been realized. This amount of money would have covered the ENTIRE 2008 federal budget for Education, Health and Human Services, and Homeland Security. (Calculations here.)

The consensus among Americans, thanks to years of supply-side assurances, is that business taxes slow the economy, eliminate jobs, and drive the corporations to other states or countries. It's often noted that the U.S. already has one of the highest corporate tax rates among OECD countries. But according to the Brookings Institution, and as suggested by the calculations above, the U.S. is actually the fourth lowest among OECD countries in the collection of corporate taxes as a percentage of GDP.

The threat to shut down and move out of the country is also highly questionable. Between 2002 and 2006 the S&P 500 realized 18 consecutive quarters of double-digit revenue growth. The average salary for CEOs of large U.S. firms in all industries was $11.6 million in 2005, with some oil company and military defense executives making much more, up to almost $100 million a year. US productivity has continued to surge in the 2000s, while worker compensation has remained largely stagnant.

When social security taxes, sales taxes, transportation fees, and utility costs are included, the typical American wage earner pays about a 40 percent overall tax. American wage earners should think about the big companies with the little tax bills the next time their local school budget is cut.


Understand the importance of honest news ?

So do we.

The past year has been the most arduous of our lives. The Covid-19 pandemic continues to be catastrophic not only to our health - mental and physical - but also to the stability of millions of people. For all of us independent news organizations, it’s no exception.

We’ve covered everything thrown at us this past year and will continue to do so with your support. We’ve always understood the importance of calling out corruption, regardless of political affiliation.

We need your support in this difficult time. Every reader contribution, no matter the amount, makes a difference in allowing our newsroom to bring you the stories that matter, at a time when being informed is more important than ever. Invest with us.

Make a one-time contribution to Alternet All Access, or click here to become a subscriber. Thank you.

Click to donate by check.

DonateDonate by credit card
Donate by Paypal
{{ }}

Don't Sit on the Sidelines of History. Join Alternet All Access and Go Ad-Free. Support Honest Journalism.