Twenty-six companies in the Fortune 500 paid no U.S. federal income over a four-year period, often through a corporate tax break that's expected to cost the Treasury $37 billion in revenue between 2010 and 2014, according to a new analysis from Citizens for Tax Justice.
At least half of those name-brand corporations took advantage of a provision known as accelerated depreciation to avoid federal income taxes from 2008 through 2011, the left-leaning advocacy group said. The analysis expands on an examination of 280 major corporations by Citizens for Tax Justice and the nonpartisan Institute on Taxation and Economic Policy. That inquiry found that 30 companies had no net federal income tax from 2008 through 2010.
New research based on the 2011 tax year shows that all but four of the companies maintained a negative federal income tax rate over the entire 2008-2011 period. That means the companies' income after filing their annual tax documents was actually greater than before they filed.
These big, profitable corporations are continuing to shift their tax burden onto average Americans, said Bob McIntyre, director of Citizens for Tax Justice. This isn't fair to the rest of us, it makes no economic sense and it's part of the reason our government is running huge budget deficits.
DuPont Pays Highest 4-Year Rate
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Among the 26 companies that had negative federal tax rates throughout the four years are giants such as General Electric Co. (NYSE: GE) and Verizon Communications Inc. (NYSE: VZ), which posted profits of $19.6 billion and $19.8 billion, respectively, during that period.
Of the four remaining entities, DTE Energy Co. (NYSE: DTE), Honeywell International Inc. (NYSE: HON) and Wells Fargo & Co. (NYSE: WFC) paid four-year effective tax rates below 4 percent. Chemical producer E.I. DuPont de Nemours & Co. (NYSE: DD) paid the highest four-year rate at 10.9 percent -- still far below the official federal corporate income-tax rate of 35 percent.
Overall, the 2008-2011 federal income tax for the 30 companies was negative, even though they brought in a combined $205 billion in gross profit in the United States during that period. However, there was a small sign of improvement: The average effective income tax rate was slightly higher in 2011 from the advocacy group's 2010 analysis, to -3.1 percent from -7.1 percent.
Many of the companies received huge tax subsidies from the government between 2008 and 2011, adding up to $78 billion. Banking giant Wells Fargo, one of the three companies that had a positive four-year effective tax rate, received the biggest chunk -- $21.6 billion -- over the four years, followed by General Electric, at $10.6 billion; Verizon, $7.7 billion; and aircraft maker Boeing Co. (NYSE: BA), $6 billion.
Last year, 24 of the 30 companies in question paid effective tax rates of under 4 percent, including the 15 that paid zero or actually enjoyed tax rebates. At 7.1 percent, the effective federal income-tax rate for U.S. corporations in 2011 was just one-fifth of the statutory rate.
Most of the companies were able to keep their tax rates so low by deferring a portion of their taxes through accelerated depreciation. This accounting method allows increased tax incentives for businesses that buy capital assets to boost profits and, so the taxation theory goes, the U.S. economy.
The idea is you want to give these companies an incentive to accelerate for investment purposes, explained Joseph Rosenberg, research associate at the nonpartisan Tax Policy Center, who emphasized that those companies will end up paying deferred taxes at a later date.
Democrats and Republicans alike have supported expansion of accelerated depreciation through another measure, bonus depreciation, that lets companies write off even more of their capital investment. The policy has been in effect on a temporary basis since 2008, then extended in early 2009 as part of President Barack Obama's economic-stimulus package at a rate of 50 percent. That meant companies could deduct from their taxes as much as half the cost of their capital investment.
Bonus depreciation was increased to 100 percent for investments made between September 2010 and Dec. 31, 2011, with the passage of the Tax Relief, Unemployment Insurance and Job Creation Act of 2010. While the policy was passed as a means of providing financial relief to corporations during the recession, Congress's Joint Committee on Taxation recently estimated accelerated depreciation will cost the U.S. Treasury about $37 billion between 2010 and 2014.
Revenue from corporate taxes was only 1.2 percent of U.S. gross domestic product in 2010, according to the Tax Policy Center, a historically low rate. For instance, in the 1950s corporate taxes typically made up between 5 percent and 6 percent of GDP, a figure that began to fall during the 1960s.
Tax Breaks Not Translating Into Jobs
Major American companies have emerged from the financial crisis that began in late 2008 to reap some of their biggest profits in years, but this prosperity hasn't produced significant gains in the U.S. labor force.
Among companies listed in the Standard & Poor's 500 stock index, cumulative sales and profits last year exceeded the totals of 2007, before the crisis drew the United States into its worst economic decline since the Depression, according to a Wall Street Journal analysis of corporate financial reports published Monday.
That U.S. economic recovery has been reflected in the stock market, where the Dow Jones Industrial Average is at a four-year high.
But American workers haven't seen those improvements translate into more jobs. While big corporations have created about 1.1 million jobs since 2007, most of those have been outside U.S. borders.
Rather than altering the tax code to benefit the interests of multinational corporations, McIntyre of Citizens for Tax Justice said getting rid of corporate tax subsidies and instituting a revenue-raising corporate tax overhaul must be undertaken to jump-start the economy.
Republicans argue that the federal corporate income-tax rate of 35 percent -- the highest in the world after Japan -- makes it difficult for corporations to stay competitive in global markets. Republicans have typically suggested slashing that rate to 25 percent, and offered such a measure in the party's 2013 budget proposal in the House of Representatives. The plan passed, 228-191, but is likely to die in the Democrat-majority Senate.
Obama introduced his own corporate tax overhaul in February, when he asked Congress to scrub the corporate code of its loopholes and subsidies in order to reduce the top corporate rate to 28 percent. While that plan would aim to increase federal revenue by establishing a minimum tax on multinational companies' foreign earnings, it also would tap the revenue earned by closing tax breaks, offsetting the cost of new subsidies that favor manufacturing, clean energy, and research and development.