Philip Ewing / DODBuzz & Pat Garofalo / ThinkProgress – 2017-06-23 23:32:42
The ‘Tax Dodgers’ of the Defense Industry
US defense giants pay about half the corporate tax rate.
Some pay no taxes at all.
Philip Ewing / DODBuzz
WASHINGTON (November 7, 2011) — The biggest companies in the defense game paid an average of less than half the US corporate tax rate over the past three years, according to a muckraking new report by populist DC tax watchdogs.
In fact, in their study, the Citizens for Tax Justice and the Institute on Taxation and Economic Policy wrote that a few brand-name defense giants paid no taxes at all. Their statistics detail the incredible closeness of the federal government and its big vendors, which benefit not only from big-ticket defense programs but a galaxy of special provisions in the tax code.
In 2010, for example, General Electric, Honeywell, Navistar and Boeing paid no tax or even made money from federal protections or subsidies, according to the report. Boeing’s “effective tax rate,” as calculated by the report authors, was minus 1.8 percent from 2008 to 2010. Honeywell’s was minus 0.7 percent.
Most of the big defense contractors did pay some taxes, although at rates below the standard corporate 35 percent, the report said. From 2008 to 2010, the top 10 companies’ rate averaged about 15.3 percent; the defense industry overall paid at about a 17 percent rate.
A few well-known names: In that three-year period, Lockheed Martin paid a 20.2 percent rate; Northrop Gruman paid 23.8 percent; General Dynamics paid 27 percent; United Technologies paid 10 percent; and SAIC paid the most — 28.7 percent.
So how do they do it? Special protections, subsidies and other benefits. One example is “accelerated depreciation,” which the report describes this way:
“The tax laws generally allow companies to write off their capital investments considerably faster than the assets actually wear out. This ‘accelerated depreciation’ is technically a tax deferral, but so long as a company continues to invest, the tax deferral tends to be indefinite.”
Another example is stock options: “Most big corporations give their executives (and sometimes other employees) options to buy the company’s stock at a favorable price in the future. When those options are exercised, companies can take a tax deduction for the difference between what the employees pay for the stock and what it’s worth (while employees report this difference as taxable wages).”
The report goes into great detail in a company-by-company breakdown, and here are just a few examples:
Boeing: The research and experimentation tax credit saved the company $158 million, $175 million and $172 million in 2010,2009 and 2008. Excess tax benefits from stock options reduced federal and state taxes by $19 million, $5 million and $100 million in the same years.
Lockheed Martin: Because the company does not disclose US and foreign pretax income, the study estimated foreign pretax income based on reported current foreign income taxes.
More than 80% of the company’s worldwide sales in 2010, 2009, and 2009 were to the US government. The Domestic Production Activities Deduction saved the company $110 million, $39 million, and $67 million in 2010 and 2009.
The research and experimentation tax credit saved the company $43 million, $43 million and $36 million in the same years. Excess tax benefits from stock options reduced federal and state taxes by $21 million and $92 million in 2009 and 2008. Accelerated depreciation saved the company substantial amounts in all three years.
General Dynamics: Deferred taxes explain most of the tax breaks the company received in 2010, 2009 and 2008. In addition, the Domestic Production Activities Deduction reduced taxes by $61 million, $28 million and $36 million in 2010, 2009 and 2008. Excess tax benefits from stock options reduced federal and state taxes by $18 million, $5 million and $31 million in 2010, 2009 and 2008.
Northrop Grumman: Reported pretax profits in 2008 were adjusted upward for a non-cash good will impairment charge. The Domestic Production Activities Deduction reduced taxes by $34 million, $24 million and $19 million in 2010, 2009 and 2008.
The research and experimentation tax credit saved the company $15, $17 and $13 million in the same years. Excess tax benefits from stock options reduced federal and state taxes by $22 million, $2 million and $48 million in the same years.
And so forth and so on. These benefits are in addition to other ways the government helps or protects defense companies. Remember how we learned from Wikileaks that the federal government has lobbied hard on behalf of Boeing and Lockheed, trying to drum up foreign aerospace and defense sales?
All right — it is what it is, industry advocates would argue. Here’s what John Bennett wrote in The Hill:
In an email, Lexington Institute COO and industry consultant Loren Thompson called the report’s branding of companies as tax dodgers that merely “take advantage of legitimate provisions” in federal tax codes “misleading.”
“It’s like calling families tax dodgers for claiming a deduction on mortgage interest,” Thompson wrote. “When Boeing claims an R&D tax credit or writes off investment in a canceled weapons program, that’s quite reasonable.”
The business of America is business, after all, and as we keep being reminded, the defense industry is made up of for-profit companies. The companies would certainly argue that navigating the tax game as skillfully as possible is just another way to fortify the bottom line.
Defense Contractors Pay Little To No
Corporate Income Tax While Earning Billions
Pat Garofalo / ThinkProgress
Last week, Citizens for Tax Justice (CTJ) released a report showing that 30 major corporations have paid no income taxes for the last three years, as they made $160 billion.
CTJ looked at 280 companies in the Fortune 500, and found that “while the federal corporate tax code ostensibly requires big corporations to pay a 35 percent corporate income tax rate, on average, the 280 corporations in our study paid only about half that amount.”
In fact, over the last three years, only two industries — â€Šretail and health care — â€Špaid an effective tax rate of 30 percent or more. And as The Hill noted today, one industry is doing very well when it comes to tax avoidance — â€Šdefense contractors:
American defense manufacturers pay an average annual tax rate of 17.5 percent, placing them in a class with some of the nation’s least-taxed sectors like information technology, telecommunications, financial services and energy, Citizens for Tax Justice and the Institute on Taxation and Economic Policy concluded. [â€¦]
Boeing, which also makes commercial aircraft, came in with the lowest tax rate among defense firms at -1.8 percent; SAIC had the highest at 28.7 percent, according to the report.
Boeing has been outspoken about its desire to see the corporate tax rate cut, even as it pays nothing in taxes. Prominent Republicans like House Budget Committee Chairman Paul Ryan (R-WI) have joined Boeing’s griping about corporate taxes, ignoring that the company doesn’t actually pay them.
Defense contractors have made billions in profits this year, and “so far earnings by defense contractors have yet to see the effects of the end of fighting in Iraq, plans to draw down Afghanistan and expected cuts in defense spending.”
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