With the national tax filing deadline fast approaching, Americans are once again plopping down with pen, paper and potentially Turbotax to determine just how much they owe their state and federal governments. But while the popular refrain posits that nothing in life is certain but death and taxes, for many corporations and wealthy individuals, having to pay a tax bill is anything but a certainty.
Due to the proliferation of loopholes, deductions, credits, and the growing use of offshore tax evasion, many rich Americans and corporations are able to dodge the bulk of, if not all, their taxes. Between 2008 and 2011, 26 major American corporations paid nothing in federal corporate income tax, despite making $205 billion in pretax profits. In 2011 (the last year in which data is available), corporations paid just a 12.1 percent effective tax rate, the lowest in four decades. Many wealthy individuals, meanwhile, are able to drive their tax rates down below the rate paid by middle-class families. Some drive it all the way down to zero.
There are certainly large, systemic reasons for these disparities. But part of the problem is that the rich and the biggest companies have access to a slew of tax breaks from which the average household or small business derives very little benefit. Here are 10 of the most ridiculous.
- CEO “private security.” A “common corporate tax trick,” according to the New York Times, is corporate boards paying for private jets and other perks for their CEOs under the guise of security. As Steven Davidoff reported, typically CEOs would have to pay taxes on these benefits, but if the benefit is classified as necessary for security purposes, “the chief executive will pay a reduced tax bill or sometimes no tax at all.”
- Florida cow scam. In Florida, wealthy developers, lawmakers and even some corporations game the tax code by placing cows on their land for a limited amount of time each year, thereby qualifying for agricultural tax breaks. Sen. Ben Nelson (D-FL) has benefited from this absurd loophole for years, as has Disney World. But Florida isn’t the only offender. From rock stars in New Jersey to movie stars in Colorado, tax breaks meant for farmers get gamed by the most privileged, using everything from sheep to beehives.
- Facebook stock options. The social media giant Facebook made more than $1 billion in profits last year, but paid no corporate tax thanks to a huge write-off after its initial public offering. In fact, the company received a refund of $451 million. As Citizens for Tax Justice, explained, “Facebook’s income tax refunds stem from the company’s use of a single tax break, the tax deductibility of executive stock options.” This loophole will also allow Facebook to avoid more than $2 billion in taxes in future years. LinkedIn used the same gimmick to pay no federal taxes for the last three years.
- Bluegrass boondoggle. This tax break, created by Senate Minority Leader Mitch McConnell (R-Kentucky) in 2008, gives wealthy horse owners a break worth $126 million over 10 years by allowing faster depreciation (quicker tax write-offs) of race horses. McConnell has defended the break by claiming it helps Kentucky’s “farm economy.”
- Sheryl Crow loophole. Low tax rates on investment income are one of the main reasons the wealthy are able to pay lower taxes than those in the middle-class (and are also a prime driver of income inequality). Lawmakers from America’s heartland felt it was necessary to let super-wealthy musicians get in on the action, and so “passed a law allowing songwriters to avoid income taxes and sell their publishing catalogs at capital gains rates.” As San Francisco Weekly’s Chris Parker noted, “Three years later, Sheryl Crow sold her publishing rights to one of Australia's largest banks for nearly $10 million. Her estimated savings courtesy of this congressional giveaway: $2 million.”
- NASCAR tax break. Thanks to a provision in the 2008 bank bailout, owners of NASCAR tracks are able to write off the costs of their facilities over seven years, rather than “over the 39 years that the government estimates it will take for the tracks to depreciate.” This particular loophole costs the government $40 million per year, but Congress reauthorizes it over and over again.
- John Edwards/Newt Gingrich loophole. Both the former presidential candidate and the former Speaker of the House have taken advantage of a provision allowing them to dodge payroll taxes. By forming “S corporations,” Edwards and Gingrich are able to classify the money they receive from various ventures as “business profits,” rather than payments for services rendered, which exempts that money from the payroll tax. This loophole is regularly abused by lawyers, doctors and accountants, who can count the work they do every day as part of operating a “small business” that consists only of themselves. As tax expert Seth Hanlon noted, “Regular wage-earners can’t do this, and neither can the owners of other kinds of small businesses.”
- Tax breaks for vacation homes and yachts. The mortgage interest deduction, which is supposed to boost homeownership, can be used on second homes, or even yachts, so long as they are large enough to accommodate a bathroom, along with a cooking and sleeping space. Limiting the deduction to primary residences would raise $1 billion per year in revenue.
- “Double Irish” and “Dutch Sandwich.” Many companies, from Google to Amazon to Starbucks, use offshore tax havens to drive down their corporate tax rates, sometimes down into the single digits. Some of the inventive strategies they’ve used include routing profits through Ireland, the Netherlands, Bermuda, or Luxembourg, using tax tricks with cheeky names like the “Double Irish” and the “Dutch sandwich.” European countries have recently attempted to crack down on some of the more flagrant abuses.
- Large SUV’s. We’ve already discussed the yacht tax break, but going out and purchasing a large SUV will get a member of the 1 percent another write-off. As Bloomberg News noted, the tax code’s restrictions on write-offs for luxury vehicles don’t apply to those “rated at 6,000 pounds unloaded gross vehicle weight or more.” This means that “purchasing a large SUV often provides faster writeoffs than similar but smaller vehicles.”
Closing these loopholes would certainly not fix the tax code’s much larger problems or put a huge dent in the federal deficit. But they would at least get rid of some of the more egregious giveaways that plague the American tax system, while raising some money that can go to providing the critical services upon which many Americans depend.