It's a fairly common "fact" that if you make enough money, that you can hire lawyers who can hide all of your money, so that you end up paying little to no tax. Is this true?
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2@Largerbaer: Okay then, I'll change it to be little/no– PearsonArtPhotoCommented Apr 12, 2011 at 23:09
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10@Lagerbaer: Actually, it is commonly claimed that many/most/the biggest companies in America do indeed pay no taxes whatsoever. Whether the claim is an exaggeration or not (and I'm as interested in the answer to this question as the OP), the question doesn't exaggerate the claim :-)– Luke MaurerCommented Apr 12, 2011 at 23:17
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1By European standards, they'd pay "next to no taxes" even if they'd pay their taxes :-P– LagerbaerCommented Apr 12, 2011 at 23:26
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4Unless a US company is able to forgo paying payroll taxes then it is impossible for them to pay no tax. I know of no such exemption for any company. You should probably reword your question to address corporate income tax.– MuroCommented Apr 12, 2011 at 23:45
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1@Lagerbaer - I'm sorry but you are 100% wrong. See my answer to the question inspired by your comment - skeptics.stackexchange.com/questions/2134/…– user5341Commented Apr 14, 2011 at 15:57
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3 Answers
Yes, some "rich" (meaning big and usually multinational) companies pay taxes that are significantly lower than predicted by their theoretical income tax rate for their income bracket. Examples include (from Forbes):
The most egregious example is General Electric ( GE - news - people ). Last year the conglomerate generated $10.3 billion in pretax income, but ended up owing nothing to Uncle Sam. In fact, it recorded a tax benefit of $1.1 billion.... In 2008 GE's effective tax rate was 5.3%; in 2007 it was 15%. The marginal U.S. corporate rate is 35%.
Valero was zero. One can be tempted to spin a conspiracy theory out of that one...
Verizon's was 10.5%
HP's rate was 18.6%. Not zero, but not 35% either.
IBM was 25%, Procter & Gamble 26.3%
Boeing was 23% (due R&D credits, mostly)
Several more companies (Bank of America, Citibank, Ford) on Forbes's list in the article has very low rates explicitly related to gigantic losses in the last couple of years.
However a vast majority of the rest of the list (25 top US companies as Forbses titled it) was in close-to-maximum 30+% range, with the usual tax-loving-people's favorite whipping boys (oil companies) rates in 40+%.
As far as the explanation of how that happens, an income tax code contains an enormous amount of ways for a large multinational to reduce taxes owed.
Among the most impactful general principles as far as this question are the ones dealing with:
Carryforward of past losses. In GE's specific case, it was large losses in its financial subsidiary during the bank meltdowns and writing off the fact that they closed 20 US factories between 2007 and 2009.
assorted accounting rules allowing you to time-shift profits (see the discussion of cash vs. accrual basis here) to whenever you will pay the least amount of taxes.
Geographical shifting - e.g. accounting so that your profits are earned outside of USA (offshore). The article linked in another answer posits that this provided a large portion of tax savings, though it didn't document that statement.
A very detailed laymans-terms explanation is in this Bloomberg article: "Google 2.4% Rate Shows How $60 Billion Lost to Tax Loopholes"
numerous other loopholes and deductions to pay less taxes. This is due to two factors:
the influence of lobbyists on politicians who write the tax-affecting laws.
As an example, "GE became the nation's top corporate spender on lobbying, spending more than $238 million on lobbyists over the past 12 years, according to the Center for Responsive Politics" (ABC news).
To back the article up, here's the hard #s for lobbying: 2008 - $18 million; 2009 - $26.4mm, 2010 - about $40mm (source: http://www.opensecrets.org/lobby/clientsum.php?year=2010&lname=General+Electric). Obviously, not all lobbying money relates to tax code, but it's hard to imagine that some of it doesn't influence it in some ways, sometime via specific regulation that changes how tax code could be applied (e.g. what is considered "clean" technology).
And for political contributions: In 2010, GEPAC raised just over $1.4 million from more than 4,000 employees and contributed $1,276,950 to federal and $126,250 to state candidates in the United States (GE's own data). Non-GE numbers come from opensecrets (Center for Responsible Politics) again: $2.5mm in 2010 and a whopping $3.6mm in total political donations in 2008.
the fact that US government uses taxes as an instrument of social control (e.g. tax deductions for "clean" technology consumption AND capital investment, both of which GE can play). This factor is of course related to lobbying one above.
answered Apr 13, 2011 at 19:57
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11@ProdigySim - based on the fact that the OP accepted the answer, I would venture to guess that it does.– user5341Commented Apr 14, 2011 at 14:08
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2@Prodigysim - Oh, I see what you mean. I added actual examples to the answer - I sort of assumed the question of "Do?" was rhethorical and based off of reports of GE so no example was needed.– user5341Commented Apr 15, 2011 at 18:06
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3Good edit. I think the idea of a "rhetorical" question kind of defeats the purpose of skeptics. Commented Apr 15, 2011 at 18:28
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2Most people would call that a "rent". When gas companies pay private landowners to frack on their property, that's not considered a "tax". It's easy to think taxes are high when you stretch the meaning of all your costs to be "taxes". But still, that only brings the number to 14%. If you're going to stick by the 39.4% number, please elaborate. Then, there's the Forbes byline that says "I'm based in Houston, Texas. Energy capital of the world." You could not possibly be any lazier in finding an unbiased source.– NateCommented Aug 2, 2013 at 22:38
Two out of every three United States corporations paid no federal income taxes from 1998 through 2005, according to a report released Tuesday by the Government Accountability Office, the investigative arm of Congress.
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In 2005, one in four large United States corporations paid no taxes on revenue of $1.1 trillion, compared with 66 percent in the overall pool.
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In 2004, a G.A.O. study said that 7 in 10 of all foreign corporations doing business in the United States, or foreign-controlled corporations, paid no taxes from 1996 through 2000, compared with 6 in 10 United States corporations.
http://www.nytimes.com/2008/08/13/business/13tax.html?_r=1
The story also includes a quote from a fella from the Tax Foundation, an organization well-known to peddle corporate propaganda about taxes, about how the untaxed corporations are just simply the corporations that lost money, making no profit, and thus paying no taxes. Although such examples certainly do exist, the statement is false, as is most everything that you hear out of the Tax Foundation.
In fact, a NYTimes author, in a blog post, linked a mash-up of articles rebuffing the Tax Foundation, and I found this in that mash-up:
the actual tax rates paid by US corporations are extraordinarily low, around 6%.
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Remember the latest GAO report (reported elsewhere on ataxingmatter) that shows that two-thirds of US corporations pay no federal income tax. That's not just the ones that are losing money, but also many corporations that have record high profits (including some Big Oil companies) that end up paying next to nothing in taxes.
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As a result, the US is actually a corporate tax haven, with the lowest effective corporate tax rates of almost all the countries that participate in the OECD. That's a little fact that the Tax Foundation apparently doesn't want the American public to understand, since all its hype is in terms of statutory rates and not in terms of effective tax rates.
http://economistsview.typepad.com/economistsview/2008/08/the-greek-menac.html
Just to give an example, one way to avoid paying corporate income tax is to provide goods & services, for pennies on the dollar, to a subsidiary operating in a foreign country that doesn't tax them. By doing so, you erase your domestic profits by sending it to a foreign subsidiary in the form of goods & services, which they then use to make even larger profits, which they then send back to you, untaxed.
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18I haven't bothered analyzing the rest of your article for BS, but based on the quote regarding "but also many corporations that have record high profits (including some Big Oil companies) that end up paying next to nothing in taxes", it doesn't look promising. If you bother looking at the data I linked in my answer, the oil companies in the sample paid the HIGHEST effective tax rate among 25 biggest US companies; 40+%, higher than top tax bracket. Also, a hint - if you don't want to sound like a crazed anti-capitalist, drop the derogatory "Big Oil" moniker.– user5341Commented Apr 16, 2011 at 15:26
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9Also, "Two out of every three United States corporations paid no federal income taxes from 1998 through 2005, according to a report released Tuesday by the Government Accountability Office, the investigative arm of Congress." - if you don't want to sound like a DNC propaganda arm, you might want to actually provide the analysis of the distribution of income brackets. You know, a "corporation" is not just GE. It's also a mom-and-pop small business - a LOT of which lose money or don't make too much of it.– user5341Commented Apr 16, 2011 at 15:31
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1"Although such examples certainly do exist, the statement is false, as is most everything that you hear out of the Tax Foundation." - unproven assertion. -1– user5341Commented Apr 16, 2011 at 15:32
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2@DVK Do you have anything to debunk the statements of Linda Beale (who has a rather impressive CV and is most certainly not a "hack reporter,") such as "6% effective tax rate," "lowest effective corporate tax rates of almost all the countries that participate in the OECD," or 2% for the US vs. a 3.5% average for OECD countries in terms of corporate tax liability in relation to GDP?– MichaelCommented Apr 17, 2011 at 5:19
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4@DVK, and by the way, this thread from Michael's answer does at least have a post from one reader (
bullbust) that explains that to get to that 40% effective tax range, you need to include taxes paid to foreign countries, not just to the US. That's kind of an important detail in the context of this question, and the size of the US/foreign tax payments.– NateCommented Aug 2, 2013 at 23:01
Stories like General Electric Paid No Taxes In 2010 are common in America. I can remember reading similar stories over the years. It would be surprising if only GE pays no tax - otherwise, how would other giant companies compete with GE?
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1There's one key point of this, that does make alot of sense. In a statement, General Electric said that it "pays what it owes under the law and is scrupulous about its compliance with tax obligations in all jurisdictions." The company claims that its zero-dollar tax bill is largely a result of losses at its financial arm, GE Capital, due to the Wall Street meltdown. Commented Apr 13, 2011 at 0:13
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1regarding "how would other giant companies compete with GE", it's quite possible that GE got special waivers/specially worded tax provisions etc... inserted which benefit it better than competitors. The is done both via general lobbying of both partis as well as cosy relationships with specific highly placed individuals (GE chairman with current US administration, for example).– user5341Commented Apr 13, 2011 at 16:00
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1Well, yes! GE paid $N to lobby for preferential tax treatment, and then paid $N/M in tax. In the case of 2010 tax, they paid $0. Lobbying has an incredibly good return on investment, if your business is big enough in the first place.– user1838Commented Apr 19, 2011 at 19:30
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2It's also a question of WHICH tax didn't they pay, and why. GE pays taxes, as does pretty much everyone else, but they might have an excemption on some taxes or get subsidies and credits to the point where it cancels out some other taxes. For example a company may have to pay $100 million in corporate taxes but receive $110 million in subsidies. The anti-capitalists will claim they pay no taxes when in fact they do.– jwentingCommented Apr 20, 2011 at 9:34
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@jwenting, did you read the explanation of why GE paid no taxes? Commented May 5, 2011 at 17:13