A careful study of 280 companies in the Fortune 500 list of the largest corporations in the U.S. showed that while all were profitable, 30 of them paid no corporate tax and the average of the tax paid in 2008 through 2010 was 18.5 percent.
The corporate tax rate is 35 percent. But, as the study showed, most businesses don’t pay it.
The corporations quickly explain that they are filing honest returns. The tax laws are so full of holes that the companies — including some as large as General Electric, Paccar, Inc., PG&E and Computer Sciences Corp. — can take enough legal deductions to avoid the taxman.
The study shows that tax reform could take the nation quite a way toward meaningful reduction of the federal deficit. Eliminate the tax breaks and watch the money roll in.
What kind of tax breaks did the study reveal? The biggest one was accelerated depreciation, which allows companies to write off the purchase of equipment faster than it actually wears out. They also can deduct the value of executive stock options as an expense and get a tax credit for making a product in the U.S. rather than abroad.
The organizations making the study were Citizens for Tax Justice and the Institute on Taxation and Economic Policy. Robert McIntyre is head of the Tax Justice group. He was the co-author of a study in 1986 that resulted in the largest corporate tax increase in U.S. history, largely by ending tax breaks, while at the same time cutting individual tax rates.
You read the date right: Ronald Reagan was president. Reagan’s tax reform swept away corporate tax loopholes. The average effective corporate tax rate was about 14 percent before the Reagan reforms. Afterward it shot up to 26.5 percent — about 8 percent higher than the average being paid today.
Similar reforms today wouldn’t solve the deficit problem alone. They could, however, contribute $102 billion in added federal revenue.
The deficit reduction committee should leap at the opportunity.
— Emerson Lynn, jr.
