Gary Weiss / Parade Magazine – 2008-04-15 00:39:21
(April 13, 2008) — As you file your tax return this week, you may think you’re paying off the tax obligations for just your household. But you’re also footing the bill for American companies that are dodging billions of dollars in taxes. “Most major corporations have a tax department not just to comply with the tax code but also as a profit center,” says Charles Cray of the Center for Corporate Policy, a nonprofit watchdog group.
A 2004 US Government Accountability Office (GAO) study found that 61% of American corporations, including 39% of large companies, paid no corporate income taxes between 1996 and 2000. Last year, corporations shouldered just 14.4% of the total US tax burden, compared with about 50% in 1940.
While companies are getting off easy, thanks to loopholes, ordinary wage earners are getting stuck with the tab. The tax burden on individuals is expected to climb from $1.16 trillion in 2007 to $1.21 trillion this year, according to the Congressional Budget Office (CBO), while corporate tax receipts are expected to decline from $370 billion to $364 billion. By 2013, the CBO estimates, ordinary taxpayers’ bills may climb to $1.86 trillion while corporate tax bills drop to $327 billion.
One strategy of corporations is to create “shell companies” in places like Bermuda, Gibraltar and the Caribbean to avoid federal taxes. Corporations “set up an offshore division that has nothing more than a post office box,” says Rep. Richard
E. Neal (D., Mass.), the chairman of a House subcommittee probing tax breaks. Experts estimate that the US Treasury may be losing up to $100 billion a year due to shell corporations.
In one recent case, KBR—a former Halliburton subsidiary and the largest Iraq war contractor—admitted to “reducing tax obligations” through two Cayman Islands divisions, reportedly avoiding hundreds of millions of dollars in Medicare and Social Security taxes. A 2004 study by the GAO found that 24 of the largest federal contractors used Cayman Is–lands units to shave their tax bills.
Oil and other multinational companies also benefit from tax breaks, some specially written for them. Most are perfectly legitimate, but companies sometimes push the envelope too far. Pharmaceutical giant Merck paid $2.3 billion to the government last year for profits related to a Bermuda partnership.
In their defense, businesses say that US corporate tax rates are the second highest in the developed world, making our country less competitive. But a study from the nonprofit group Citizens for Tax Justice found that, because of loopholes, the corporate tax burden in the US is actually the world’s third lowest when measured as a percentage of gross domestic product.
Efforts to change the system are under way. In February, the House of Representatives passed a bill to end $18 billion in tax breaks for oil companies, and Rep. Charles Rangel (D., N.Y.), head of the House Ways and Means Committee, has introduced legislation to trim corporate tax rates while reducing loopholes.
Externalized Corporate Costs Borne by Society
Ralph Estes is a professor of business administration at American University. He holds a doctorate in business administration from Indiana University. He wrote a book not too long ago called The Tyranny of the Bottom Line in which he estimates that the amount of annual costs that corporations and other businesses externalize and that must be borne by customers, employees, and society is $2,618 billion (TWO TRILLION SIX HUNDRED and EIGHTEEN BILLION DOLLARS – in 1991dollars and then adjusted to 1994 dollars.) This figure does NOT include special tax breaks corporations get or the direct subsidies that they receive. Compared to total corporate profits in the order of Five Hundred and Fifteen Billion Dollars, the estimated societal COSTS of corporations are five and one half times the amount of their benefits.
Russel Mokhiber, editor of the Corporate Crime Reporter, estimates that white collar crime costs the nation’s businesses and individuals at least $100 billion EACH YEAR. (A sum incidentally that is more than 10 times greater then the combined total from larcenies, robberies, burglaries, and auto thefts committed by individuals.) If you count other corporate underhandedness, such as monopolistic price fixing and the sale of faulty goods, the price tag jumps about $200 billion more. And the Justice Department estimates that “taxpayers lose $10 to $20 billion when corporations violate federal regulations.” Corporate Crime is so commonplace according to Mokhiber, that roughly two thirds of the country’s 500 largest companies were involved in some form of illegal behavior over a 10-year period. Despite such lawlessness, the white-collar detectives at the FBI do not track corporate crime regularly. “The government can tell the public whether burglary is up or down in Los Angeles for any given month, but it cannot say the same about insider trading, midnight dumping, consumer defrauding, or illegal polluting.” (Dollars & Sense – Nov. 1989)
If it is still in print, read America, What Went Wrong? and America: Who Really Pays the Taxes? by Donald L Barlett and James B. Steele. A more recent book to get is Perfectly Legal: The Covert Campaign to Rig our Tax System to Benefit the Super Rich- and Cheat Everyone Else by David Cay Johnston.
MOST CORPS SKIP TAXES. More than 60% of US corporations didn’t pay any federal taxes for 1996 through 2000, years when the economy boomed and corporate profits soared, the Wall Street Journal reported (citing the General Accounting Office).
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