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Corporate income tax?

post #1 of 25
Thread Starter 
Bernie Sanders (I) created a list of the top 10 corporate tax avoiders in this country. I recall that Regan requested tax reform during his term when GE's tax bill was zero. Tax revenue for corporations during his term (after the reform) was roughly 30% of the total federal tax bill. It now sits around 6.5%. Since that time there have been numerous loop holes added for corporations that have effectively lowered their tax payments.

Should there be tax reform for these situations?

http://blogs.suntimes.com/sweet/2011...s_avoidin.html
Quote:
1) Exxon Mobil made $19 billion in profits in 2009. Exxon not only paid no federal income taxes, it actually received a $156 million rebate from the IRS, according to its SEC filings.

2) Bank of America received a $1.9 billion tax refund from the IRS last year, although it made $4.4 billion in profits and received a bailout from the Federal Reserve and the Treasury Department of nearly $1 trillion.

3) Over the past five years, while General Electric made $26 billion in profits in the United States, it received a $4.1 billion refund from the IRS.

4) Chevron received a $19 million refund from the IRS last year after it made $10 billion in profits in 2009.

5) Boeing, which received a $30 billion contract from the Pentagon to build 179 airborne tankers, got a $124 million refund from the IRS last year.

6) Valero Energy, the 25th largest company in America with $68 billion in sales last year received a $157 million tax refund check from the IRS and, over the past three years, it received a $134 million tax break from the oil and gas manufacturing tax deduction.

7) Goldman Sachs in 2008 only paid 1.1 percent of its income in taxes even though it earned a profit of $2.3 billion and received an almost $800 billion from the Federal Reserve and U.S. Treasury Department.

8) Citigroup last year made more than $4 billion in profits but paid no federal income taxes. It received a $2.5 trillion bailout from the Federal Reserve and U.S. Treasury.

9) ConocoPhillips, the fifth largest oil company in the United States, made $16 billion in profits from 2007 through 2009, but received $451 million in tax breaks through the oil and gas manufacturing deduction.

10) Over the past five years, Carnival Cruise Lines made more than $11 billion in profits, but its federal income tax rate during those years was just 1.1 percent.
post #2 of 25
How can we not need a more equitable tax system when there are headlines like this one?
G.E.’s Strategies Let It Avoid Taxes Altogether
Quote:
The company reported worldwide profits of $14.2 billion, and said $5.1 billion of the total came from its operations in the United States.

Its American tax bill? None. In fact, G.E. claimed a tax benefit of $3.2 billion.

That may be hard to fathom for the millions of American business owners and households now preparing their own returns, but low taxes are nothing new for G.E. The company has been cutting the percentage of its American profits paid to the Internal Revenue Service for years, resulting in a far lower rate than at most multinational companies.

Its extraordinary success is based on an aggressive strategy that mixes fierce lobbying for tax breaks and innovative accounting that enables it to concentrate its profits offshore.
This is a good op-ed piece in the same vein:
Losing Our Way
Quote:
Quote:
There is plenty of economic activity in the U.S., and plenty of wealth. But like greedy children, the folks at the top are seizing virtually all the marbles. Income and wealth inequality in the U.S. have reached stages that would make the third world blush. As the Economic Policy Institute has reported, the richest 10 percent of Americans received an unconscionable 100 percent of the average income growth in the years 2000 to 2007, the most recent extended period of economic expansion.

Americans behave as if this is somehow normal or acceptable. It shouldn’t be, and didn’t used to be. Through much of the post-World War II era, income distribution was far more equitable, with the top 10 percent of families accounting for just a third of average income growth, and the bottom 90 percent receiving two-thirds. That seems like ancient history now.

The current maldistribution of wealth is also scandalous. In 2009, the richest 5 percent claimed 63.5 percent of the nation’s wealth. The overwhelming majority, the bottom 80 percent, collectively held just 12.8 percent.
post #3 of 25
G.E.'s heavy support of politicians has paid off, hasn't it?

Actually, there's a good reason for their low rate last year. Their lending arm, GE Capital, took a tremendous beating.

However, let's say up front that there's no such thing as a corporate tax, merely hidden taxes collected from consumers and passed along to the government.
post #4 of 25
Thread Starter 
I did a lot of financial transactions when I last worked for a major corporation. The type of work you did (either expense or capital) was classified based on the most positive effect on their tax returns. The policy for capital classification seemed very clear and there were only very specific work activities that could be attributed as "capital" work. However, the flip side was that all of the work that could be capitalized could also be expensed without any restrictions. The accounting department always had to give final ruling on how work activities were treated for tax purposes, and how you classified work was always based on the best tax return.

In a similar vein, there were tax deferals based on when you considered software as being "in service" (or actually being used). Large IT investments were broken into small portions so that those portions could be used by their employees. For a 3 year period, I witnessed a $300M software investment being incrementally deployed. It was being used by exactly 1 person - the rest of the 15,000 people that were to use it waited until it was completely done. Why did they do this? So that they could receive tax breaks during the time it took to actually finish the software for general use. When talking to accounting about it, they asked me if it was being used. I said yes, by 1 person who was writing the training material for final release. That was enough to defer roughly $100,000 monthly taxes for the corporation.

How do I know this? I was running IT projects in general and the $300M project in particular. I spent as much time with accounting as I did with the IT people working the project. My department alone had 10 full time accountants.

It is very clear to me that there are unbelievable tax loopholes for corporations. People that work in corporations don't do these things to be malicious. They do these things because they don't realize the implications on the larger economy. Hind sight has given me a clearer perception of the problem, and I only saw the IT side of tax evasion.
post #5 of 25
Thread Starter 
Interesting that there aren't more comments on this one. There is a government shut down being threatened under the guise for the need to balance the budget. At the same time, tax revenue has been drastically reduced over the last 25 years from corporations. Last I checked, one way to balance a budget is to generate more income. Wouldn't closing the tax loopholes for these corporations help balance the budget?
post #6 of 25
It might. That's not how we balanced the budget the last time it happened, though.

The U.S. already has one of the highest corporate tax rates in the developed world, which some say drives capital offshore.

But very wise men said a long time ago that taking into consideration the tax consequences of every decision is a bad way to run a family, a business, or a country.
post #7 of 25
A corporate income tax makes no sense and is ultimately pointless IMO.

What does need to be addressed though is that the leaders of corporate America are also the un-elected leaders in Washington, and they are making themselves filthy rich by forming policy in their favor and awarding themselves huge bonuses fantastically disproportionate with their value to the company.

When you realize that, you can see exactly where corporate income taxes are going, where they are actually coming from, and effect it has on the market.

Check out documentary flicks like 'Inside Job' and 'Food, Inc' for some insight into the issue.
post #8 of 25
Quote:
Originally Posted by mrblanche View Post
The U.S. already has one of the highest corporate tax rates in the developed world, which some say drives capital offshore.
The question is, how many actually pay it? Have you seen the above link about GE?
post #9 of 25
I don't know about the rest of you, but when I sit down to do my taxes, my goal is to pay nothing. Max out retirement contributions, tax free investments...oh and those refundable ones like Making Work Pay. I get giddy every time stuff like that pops up. Of course, I'm no GE. Wouldn't it be interesting to see what's on those returns though? How exactly does 26 billion get whittled down to nothing?

So while I don't end up writing a check to pay taxes, I do pay some kind of tax every time I fill up the tank, buy something, pay a bill, etc. I'd be curious to know what kind of income these companies generate to the government though their operations, jobs, dividends, etc., even though it comes out of other pockets?

My worry with additional taxes is always that the guy at the bottom of the food chain is going to be the one to open his wallet and pay it. But, that said, I think the entire tax structure needs some work, not just the corporate. If everyone paid a little, (including deadbeats like myself ) we'd probably be able to fund the government for more than a few weeks at a time.
post #10 of 25
Quote:
Originally Posted by jcat View Post
The question is, how many actually pay it? Have you seen the above link about GE?
As I said, their case is a little unique in those large corporations, due to a large lending entity (GE Capital).

However, I would have to say...they managed to make their capital flee pretty well, didn't they? I'd like to know how much of that income is US produced, and how much from the rest of the world.

But...if they're not going to pay it anyway, why have the laws on the books that attempts to force them to pay what the current laws say they don't have to pay?

They didn't break any laws, I guarantee you, in not paying any taxes, any more than I am when I put money in my IRA to keep from paying taxes. They just used the laws already in place.

The Earned Income Tax Credit costs the U.S. more than all those corporations combined, by the way. And I don't see anyone (except maybe the Tea Party) fussing about those people using the tax code to not only avoid paying taxes, but also to get a refund.

And before you point out that those people actually paid taxes (SS and Medicare) I need to point out that GE paid those taxes, too, 7.5% of everything their employees earned.
post #11 of 25
Thread Starter 
Quote:
Originally Posted by jcat View Post
The question is, how many actually pay it? Have you seen the above link about GE?
That's exactly why I started this thread. I've heard people defend corporations by saying they have the highest tax rate in the world. But if the loop holes prevent them from paying that rate, it's a completely misguided argument (IMHO).

To think that I personally pay more taxes than GE makes me think that there is something fundamentally wrong with our tax system.
post #12 of 25
I suppose it's just me, but I find the idea of referring to the system of profit and loss as "income" just falls outside of the definition. How can a corporation (basically just a diverse business) have an income?
post #13 of 25
Thread Starter 
Quote:
Originally Posted by Skippymjp View Post
I suppose it's just me, but I find the idea of referring to the system of profit and loss as "income" just falls outside of the definition. How can a corporation (basically just a diverse business) have an income?
Good point - it's actually a net profit from their revenue stream.

But on a related thought, the Supreme Courts gave corporations rights that are usually limited to individuals. Individuals have income. Corporations have profits. Is it a stretch that if they are treated as individuals, that their profit is called income? Just a thought......
post #14 of 25
Quote:
1) Exxon Mobil made $19 billion in profits in 2009. Exxon not only paid no federal income taxes, it actually received a $156 million rebate from the IRS, according to its SEC filings.

2) Bank of America received a $1.9 billion tax refund from the IRS last year, although it made $4.4 billion in profits and received a bailout from the Federal Reserve and the Treasury Department of nearly $1 trillion.

3) Over the past five years, while General Electric made $26 billion in profits in the United States, it received a $4.1 billion refund from the IRS.

4) Chevron received a $19 million refund from the IRS last year after it made $10 billion in profits in 2009.

5) Boeing, which received a $30 billion contract from the Pentagon to build 179 airborne tankers, got a $124 million refund from the IRS last year.

6) Valero Energy, the 25th largest company in America with $68 billion in sales last year received a $157 million tax refund check from the IRS and, over the past three years, it received a $134 million tax break from the oil and gas manufacturing tax deduction.

7) Goldman Sachs in 2008 only paid 1.1 percent of its income in taxes even though it earned a profit of $2.3 billion and received an almost $800 billion from the Federal Reserve and U.S. Treasury Department.

8) Citigroup last year made more than $4 billion in profits but paid no federal income taxes. It received a $2.5 trillion bailout from the Federal Reserve and U.S. Treasury.

9) ConocoPhillips, the fifth largest oil company in the United States, made $16 billion in profits from 2007 through 2009, but received $451 million in tax breaks through the oil and gas manufacturing deduction.

10) Over the past five years, Carnival Cruise Lines made more than $11 billion in profits, but its federal income tax rate during those years was just 1.1 percent.
The problem with this list is that a number of examples seem to confuse investment with revenue, and it would be ludicrous to consider taxing investments when they're made. And that's the heart of the tax reform question, isn't it? How to determine which cash flows should be taxable - and when?

The example you gave re: software development is perfect. It sure can seem like the exploitation of a "tax loophole." But development of software and technology require investment and they do have real costs associated with them. The goal of Generally Accepting Accounting Principles is to match the recognition of revenue and expense with the time periods in which they occur, irrespective of when the cash flows actually occur. Obviously this leaves room for .... creative interpretation, let's call it.

It'll take a little while for me to look at XOM, as an example. But right off the bat, when I look at their financial statements, I see a company that earned $48 billion in operating income (that's basically revenue minus the direct costs (GAAP) of creating that revenue, including depreciation and amortization), and spent $24.2 billion in capital investment, and $26.9 billion in financing-related activities, so the net cash was a decline of approximately $2.9 billion.

I haven't gotten to the right section yet, but XOM is accruing taxes (in 2010) at a rate of 45% of reported net profit, $21.6 billion. Including sales taxes & other taxes and duties, the total accrual was $89.2 billion.

OK. (I'm on p. 99 of the 200 page 10-K/A filing for 2010). Note 4 indicates that in 2010 $18.9 billion in income taxes were paid in 2010. (This is cash flows, not accruals). I'm not sure for what period that was - this indicates the actual cash payments in 2010 for income taxes. (This number was $15.4B in 2009 and $33.9B in 2008). I've still got a lot to look through... but I'm not sure where he's coming up with those numbers. I also have to find the table with the breakdown between U.S. operations and foreign ops. ...which adds another question to the list, which is, should U.S. companies have to pay taxes on the foreign portion of their operations?

This isn't in defense of the current corporate tax structure... just an indication of how truly complex the issue is, I guess.
post #15 of 25
Ah... I might want to look at XOM's 2009 statements. I was looking at 2010.
post #16 of 25
Slightly off topic, but since you asked, Laurie, it's not just US corporations paying US taxes on their foreign operations, but also US citizens with earnings already taxed in their countries of residence (beyond a certain deductible).
post #17 of 25
Here's an article on how you could accomplish the same thing, by the way:

Pay no income taxes on $150,000 income
post #18 of 25
Quote:
Originally Posted by jcat View Post
Slightly off topic, but since you asked, Laurie, it's not just US corporations paying US taxes on their foreign operations, but also US citizens with earnings already taxed in their countries of residence (beyond a certain deductible).
I've never earned money out of the country. You're saying you have to pay US taxes on foreign-earned income? I wouldn't have expected that. I was thinking companies wouldn't have to pay federal taxes on foreign-generated income - but if it were in some way to be taxed, it would only be on the portion of earnings repatriated to the U.S. (Though why they'd want to dis-incentivize corporations returning profits to the US for reinvestment here is a big question).

P.S. I analyze companies for a living, and I model out earnings projections and operating cash flows. I focus on companies from an equity investment perspective, and focus on GAAP earnings. I don't look at them from a purchase (takeover) standpoint - I'm not an investment banker. They focus on the tax implications of M&A and "cash accounting," not GAAP accounting, so I have little experience and knowledge of tax matters re: corporations.
post #19 of 25
Quote:
Originally Posted by LDG View Post
You're saying you have to pay US taxes on foreign-earned income?
Yep, even if you live exclusively outside the U.S., so it wouldn't surprise me if corporations did.
post #20 of 25
Wow, that's... weird (not exactly the word(s) I wanted to use LOL). If you're a part-time resident of a State, you have to pay only that portion of taxes related to the time that you live in that State. I would have expected the same of forein-earned income.

(Except New York, where if you live in another state yet earn your money in New York, you have to pay taxes in NY and the state in which you live).
post #21 of 25
Quote:
Originally Posted by LDG View Post
Wow, that's... weird (not exactly the word(s) I wanted to use LOL). If you're a part-time resident of a State, you have to pay only that portion of taxes related to the time that you live in that State. I would have expected the same of forein-earned income.

(Except New York, where if you live in another state yet earn your money in New York, you have to pay taxes in NY and the state in which you live).
There are a lot of nasty exceptions to that. When we worked for an Alabama company but lived in Arkansas, we had to pay tax to both states. The trick was to do the Alabama return first, where the tax was lower, then claim that tax as a deduction on the Arkansas tax, where the tax rate was higher. We never lived in Alabama, but we had to pay income tax there.

But back to corporate income tax. They corporation has a responsibility to its shareholders to maximize profit. Any comptroller or CFO who failed to take every possible deduction to reduce taxes would be subject to lawsuit by the stockholders...and yes, it does happen.

On the other hand, Michael Moore, who complains that tax rates are too high, is perfectly able to pay more taxes, if he wants to. Do you think he does?
post #22 of 25
Thread Starter 
Having lived on the border between Kansas and Missouri for years now, and working in both states at various times, I know that you have to pay income tax to both states. As Mike pointed out, you start with the one with the best deductions towards the income you earned in that state, then use that as a deduction for the other state. The earnings are based in some cases on the primary location of your job, but there are times when you can vary your return if you worked part of the year in one state and part of the year in another state even if you worked for the same company. To complicate things, interest earned from a bank or other investments are classified as income to your state of residence, and of course is divided if you move from state to state.

I have foreign investments, and I do have to pay both federal and state tax on any earnings from those investments.
post #23 of 25
One really funny town is Texarkana, where the tax laws are just amazing. Arkansas has an income tax, Texas doesn't, so there is a special expemption for Texarkana, AR, residents.
post #24 of 25
This thread popped to mind when I saw this commentary today: Should the US adopt a minimum alternative corporate tax for companies?
post #25 of 25
Quote:
Originally Posted by mrblanche View Post
But back to corporate income tax. They corporation has a responsibility to its shareholders to maximize profit. Any comptroller or CFO who failed to take every possible deduction to reduce taxes would be subject to lawsuit by the stockholders...and yes, it does happen.
So I was listening to presidential candidate Herman Cain on corporate tax dodging and his response would be to lower the corporate tax rate to 25 percent from 35 percent. He would actually like to see no taxes on corporations but is positioning for a more realistic level. Cain said the US is the only country to not have lowered the corporate tax rate in the last 15 years.

The thrust of his argument is that corporate tax avoidance imposes a higher tax burden on individual Americans because taxes are always passed along to consumers. Change the loopholes by eliminating the tax code and replace it with the Fair Tax and there would be no loopholes. But defending the current situation in terms of consumer protection only makes sense if it saves billions on lobbyists whose job it is to help rewrite the tax code and pave the way for corporate tax dodging. What am I missing ? What is being passed on in the form of higher prices if nothing is being paid ??

By Cain's logic, reduce this to 10% and it will attract more foreign businesses to locate in US and keep US business operations in America ?? How much is enough to more than offset 3rd world wages and provide a greater control of operations for higher quality ?

How do you compete against globalism and free-trade policies that require Americans to compete for jobs with Chinese who work for only 40 cents, or even $2, an hour? The government has passed favors to entice GE (and other companies) to do business in the US in such a way so as to avoid federal income tax liability. The result is that GE might not pay corporate taxes, but over half their American jobs have still been outsourced. Tax rates have been higher, environmental regulations have not changed, law suits have not increased - 3rd world labor rates are what beckoned to industry.

Some politicians need to sacrifice themselves by educating the public. Put this stuff out on the table. lol
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