Corporate Tax Evasion Hurts Economy

Caryl Guisinger

This article was originally published on Saturday, July 3, 2010 at The Grand Island Independent.

Money earned, saved, and spent.  It’s what drives the economy, isn’t it?  When money is hoarded by corporations and taken from great numbers of people, the economy suffers and fails. So if corporations are a significant aspect of the economy, shouldn’t they pay their fair share of income taxes?  

With all the ballyhoo from the media and our congressional leaders about the federal deficit, there is hardly a mention of the miniscule amount of taxes that corporations pay. This “wag the dog” strategy that the media and Congress employs is an insult to its citizenry. It’s a fact of life that ordinary citizens bear the brunt of the tax burden. Yet, it shouldn’t be.

Since the Supreme Court’s January 2010 decision to further extend “personhood” rights to corporations, shouldn’t they be required to pay requisite taxes just like an average citizen - that is, without loopholes, subsidies, and tax havens?  

You may have heard that corporations in the United States face one of the highest income tax rates in the world - up to 35 percent. Yet, with the myriad of loopholes and subsidies designed by lobbyists and passed by a subservient Congress that benefit corporations’ bottom line, most citizens pay a higher percentage than corporations. The truth is between 2000 and 2005 U.S. corporations actually only contributed 2.2 percent of their taxes to the Gross Domestic Product (GDP), according to Smart Money, whereas the average for the 30 richest countries was 3.4 percent.  

So what is wrong with this picture? Part of the answer is that big U.S. companies have become experts at hiding profits in overseas tax havens and subsidiaries. And many smaller corporations simply pass through their income to owners who then report it on their personal returns. One analysis indicated that if so much corporate income hadn't moved to the personal tax rolls over the last 20 years, U.S. corporate taxes would account for 3.2 percent of the GDP.  One percent of GDP’s $14 trillion equates to an additional tax revenue of $140 billion from corporations if they completed their tax return honestly and with integrity.  And that only accounts for loss of tax revenue that was diverted from corporate to personal returns.

So what happened to the corporate tax rate of 35 percent?  The income not squirreled away overseas or channeled to personal returns still enjoys protection in the form of various tax breaks that depress the effective rate to 27 percent, according to the Treasury Department. Corporate tax breaks are expected to cost the Treasury $1.2 trillion over the next 10 years, reducing the corporate tax revenue by 25 percent.  One Congressional Budget Office analysis estimated that the effective corporate rate in the U.S. peaked at nearly 32 percent in 2000, but has declined to 25 percent by 2005, all courtesy of tax havens, foreign subsidiaries, loopholes, and subsidies.

An obscene example of one large corporation taking advantage of loopholes is Microsoft.  According to The Motley Fool, Microsoft received cash by issuing employee stock options, after which the company then received billions of dollars in tax deductions from the IRS for doing so. Add in the warrants it sells on its own stock, and the company made over $5 billion off the stock market in 1999, tax-free. 

Forbes cites two more egregious examples: General Electric, which “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.” Exxon Mobil, which last year reported a record $45.2 billion profit, paid the most taxes of any corporation, but none of it went to the IRS because of the loophole allowing foreign-owned subsidiaries (Exxon owns 20) to shelter the cash flow. So Exxon has tens of billions in earnings permanently reinvested overseas.

This spring, Senators Wyden and Gregg have designed a major tax reform plan that reduces the corporate tax rate to 28 percent, and additionally “overhauls and streamlines 10,000 exemptions, deductions, and credits”. So is reform the answer? Is it enough?  Will stopgaps be put into place to prevent the wheeling and dealing accountants from amassing exorbitant corporate tax savings?  Will the loopholes be plugged?

Only by citizens demanding that corporations pay their fair share of income taxes, instead of doing everything in their power to avoid taxes, will the federal deficit have any chance at being balanced.

 Caryl Guisinger of Belgrade is a public school educator. She is a member of Central Nebraska Concerned Citizens. Comments and suggestions for future topics may be sent to

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