Conservative myths: Corporations burdened by high tax rate

What was your income tax rate in 2009? Last year Bank of America, Citibank and General Electric paid 0% in taxes. They paid nothing. In other words, you paid more taxes than Bank of America, Citibank and General Electric combined.  So exactly who is it that is being burdened with high tax rates?  The answer is: You and me. Ordinary Americans are shouldering the tax burden for corporations that make hundreds of millions, if not billions in profit, yet contribute little to nothing to help pay for their share of taxes.

Conservatives endlessly complain about the onerous corporate tax burden that is stifling U.S. businesses.  The top corporate tax rate is 35%, but in reality corporations pay very little in taxes. For example, in 2009, Ford paid 2.3%, Google paid 2.4%, and Verizon paid a whopping 10.5%. The most important employees in these companies are their tax lawyers, who apply tax loopholes that effectively shift the tax burden of the United States from corporations to ordinary citizens.

According to a Government Accountability Office report issued in August of 2008, most corporations, including the vast majority of foreign companies doing business in the United States, pay no income taxes. During the eight-year period covered by the report, 72 percent of foreign-owned corporations went at least one year without owing taxes, and the same was true for 55 percent of domestic corporations.

The GAO says small companies were much more likely to pay no taxes than larger companies. But, according to the report, more than 3,500 large domestic corporations—with more than $250 million in assets or $50 million in gross receipts—did not pay taxes in 2005. These companies are not avoiding taxes by using illegal tactics. Eighty percent of the companies studied paid no taxes because they didn’t generate any profit after expenses. Others used provisions of the tax code, or “loopholes,” to lower or eliminate their liability.

Some lawmakers are not happy about this.  “It’s shameful that so many corporations make big profits and pay nothing to support our country,” said Senator Byron Dorgan , D-N.D., in a joint press release with Carl Levin, D-Mich issued after the 2008 GAO report was released. “The tax system that allows this wholesale tax avoidance is an embarrassment and unfair to hardworking Americans who pay their fair share of taxes. We need to plug these tax loopholes and put these corporations back on the tax rolls.”

How do companies like Google and others end up with a 2.4% tax rate? According to Bloomberg,

The tactics of Google and Facebook depend on “transfer pricing,” paper transactions among corporate subsidiaries that allow for allocating income to tax havens while attributing expenses to higher-tax countries. Such income shifting costs the U.S. government as much as $60 billion in annual revenue, according to Kimberly A. Clausing, an economics professor at Reed College in Portland, Oregon.

The article continues:

Google is “flying a banner of doing no evil, and then they’re perpetrating evil under our noses,” said Abraham J. Briloff, a professor emeritus of accounting at Baruch College in New York who has examined Google’s tax disclosures.

The most galling aspect of Google pursuit of tax loopholes is that the company was built on the government’s dime.  The taxes you and I paid allowed them to do the initial research to launch Google.

“Who is it that paid for the underlying concept on which they built these billions of dollars of revenues?” Briloff said. “It was paid for by the United States citizenry.”

The U.S. National Science Foundation funded the mid-1990s research at Stanford University that helped lead to Google’s creation. Taxpayers also paid for a scholarship for the company’s cofounder, Sergey Brin, while he worked on that research. Google now has a stock market value of $194.2 billion.

“The system is broken and I think it needs to be scrapped,” says Avi-Yonah, director of the international tax program at the University of Michigan Law School. “Companies are getting away with murder.”