On paper, profitable American corporations are supposed to pay a 35 percent federal income tax rate. In practice, the country’s biggest, most successful companies paid just a 19.4 percent federal income tax rate from 2008 to 2012, according to a new report from Citizens for Tax Justice (CTJ).
The group looked at the Fortune 500 list, then cut out companies that had lost money in any one of the five years it scrutinized. That left 288 large, consistently profitable companies. Rather than paying the statutory corporate income tax rate, these companies took advantage of tax breaks, loopholes, and elaborate accounting schemes to pull their effective tax rates down. A third of the group — 93 separate companies — paid a rate below 10 percent in the five-year window CTJ examined.
Meanwhile, roughly one in 11 companies at paid a zero percent effective federal income tax rate from 2008 to 2012. (That ratio aligns with a similar USA Today analysis of profitable S&P 500 companies last fall which found zero percent effective tax rates for one in every nine firms reviewed.) Those 26 companies include industrial giants like General Electric, Verizon, and Boeing. Several of the companies cited as having entirely avoided federal income taxes for five years dispute the CTJ report for a variety of reasons, the Huffington Post reports, including that the report looks at federal income taxes but not the companies’ whole tax burden and that the low effective rates owe to acts of Congress that were intended to produce tax relief for corporate America.
Regardless of how companies achieve their low- and no-tax victories against the corporate income tax, the fact that they manage to pay so much less than the on-paper rate undermines a primary argument for lowering the corporate tax rate. Business coalitions lobby lawmakers to slash corporate tax rates by pointing to that 35 percent statutory rate and saying American companies face one of the highest tax burdens in the world, but it’s fiction for even the most profitable firms.
What’s more, research indicates that companies that pay higher effective tax rates tend to create more jobs than the ones that massage their tax bills downward.