A legislative listening tour meant to make the case for comprehensive tax reform will stop on Monday at a giant corporation that’s paid a 4.2 percent tax rate on over $9 billion in profits over the past five years.
The tax reform tour, which is the brainchild of Senate Finance Committee Chairman Max Baucus (D-MT) and House Ways and Means Committee Chairman Dave Camp (R-CA), features a mix of corporate-hosted events and meetings with small businesses. On Monday, the two men will visit the Memphis, Tennessee headquarters of shipping giant FedEx. According to an analysis by Citizens for Tax Justice (CTJ), FedEx raked in $9.3 billion in profits from 2008 to 2012, but paid just $395 million in federal taxes. That means the company faced an effective tax rate of 4.2 percent – roughly one-eighth the statutory rate reformers insist is crushing the business community.
The tour is intended in part to promote lowering the corporate tax rate from its current level of 35 percent, a rate almost no businesses actually pay. Yet large corporations as a whole pay a lower actual tax rate than do middle-class families. They paid 12.6 percent on average in 2010. Companies are in fact paying historically low tax rates.
FedEx is one of 32 companies that form a group called the Reforming America’s Taxes Equitably (RATE) Coalition, whose co-chairs Elaine Kamarck and James Pinkerton have called for revenue-neutral corporate tax reform that would lower business tax rates significantly and close various loopholes. That is the same reform blueprint advanced by another business coalition, the Alliance for Competitive Taxation. But while business interests argue lowering the statutory tax rate would increase economic activity, there is no historical correlation — either positive or negative — between business tax rates and economic growth.
Corporate tax avoidance has grabbed international attention this year, thanks in part to high-profile and entirely legal tax avoidance schemes revealed at giant companies like Apple and Google. The push to reform the international corporate tax code tends to rely on lower rates and closed loopholes and continuing the so-called “territorial” approach to taxing business activity, where a company’s tax burden depends on where it is based. Those territorial approaches have encouraged an international race to the bottom on corporate tax rates, with countries like the Netherlands and Ireland seeking to attract businesses by becoming tax havens. Alternative approaches include taxing companies where their products are used rather than where their headquarters are located.