CTJReports tag:ctj.org,2009-08-11:/ctjreports//7 2012-02-07T16:14:52Z Movable Type Pro 4.261 Putting a Face(book) on the Corporate Stock Option Tax Loophole tag:ctj.org,2012:/ctjreports//7.5943 2012-02-07T15:54:24Z 2012-02-07T16:14:52Z Facebook announced this month that it plans to give its co-founder and controlling stockholder, Mark Zuckerberg, a $2.8 billion cash windfall. Amazingly, Zuckerberg's bonanza will cost Facebook absolutely nothing. Well, actually, a lot less than nothing, since it will help save Facebook, Inc. a staggering $3 billion in federal and state corporate income taxes. Read the PDF of this report.

Facebook announced this month that it plans to give its co-founder and controlling stockholder, Mark Zuckerberg, a $2.8 billion cash windfall. Amazingly, Zuckerberg’s bonanza will cost Facebook absolutely nothing. Well, actually, a lot less than nothing, since it will help save Facebook, Inc. a staggering $3 billion in federal and state corporate income taxes.

      These tax breaks are expected not only to wipe out all of Facebook’s federal and state income taxes for 2012, but also to generate a $0.5 billion tax refund of taxes the company paid in the past.

      According to Facebook’s SEC filing (in connection with its upcoming initial public stock offering), the company has issued options to favored employees which will allow them to purchase 187 million Facebook shares for little or nothing in 2012. Options for 120 million of these shares (worth $4.8 billion) are owned by Zuckerberg. The company indicates that it expects all of the 187 million vested options to be exercised in 2012.

      Under current tax law, exercise of all of the options will generate $7.5 billion in tax deductions for Facebook, which will produce $3 billion in federal and state tax reductions for the company. According to Facebook:

“we estimate that this . . . option exercise activity would generate a corporate income tax deduction [that] exceeds our other U.S. taxable income [and] will result in a net operating loss (NOL) that can be carried back to the preceding two years to offset our taxable income for U.S. federal income tax purposes, as well as in some states, which would allow us to receive a refund of some of the corporate income taxes we paid in those years. Based on the assumptions above, we anticipate that this refund could be up to $500 million.”

As for the future, Facebook adds:

“Any portion of the NOL remaining after this carryback would be carried forward to offset our other U.S. taxable income generated in future years, which taxable income will also be reduced by deductions generated from new stock award settlement and stock option exercise activity occurring in those future years.”

      Senator Carl Levin, who has proposed to limit the stock option tax loophole, told the New York Times, “Facebook may not pay any corporate income taxes on its profits for a generation. When profitable corporations can use the stock option tax deduction to pay zero corporate income taxes for years on end, average taxpayers are forced to pick up the tax burden. It isn’t right, and we can’t afford it.”

      Whatever one may think about the propriety of Zuckerberg’s huge personal gain, at least he will have to pay federal and state income taxes (at ordinary tax rates) when he exercises his $4.8 billion worth of stock options. Certainly, we need not pity him for his big tax bill, since even after paying his taxes, he’ll still end up with $2.8 billion.

      But the $3 billion in accompanying tax breaks that will go to Facebook, Inc. are another story. As Senator Levin points out, those corporate tax breaks are unjustified.

      A little history is helpful here. Prior to 2006, the rules governing how corporations treated stock options for shareholder-reporting purposes were in complete conflict with how stock options were treated for corporate tax purposes. The Financial Accounting Standards Board (FASB) thought that options should not reduce corporate profits reported to shareholders, while IRS allowed companies to deduct the full value of exercised options. Since corporations are eager to report as high as possible “book” profits to their shareholders and as low as possible taxable profits to the IRS, this was the ideal world from the point of view of corporations.

      It seemed obvious to logical observers that one of these approaches had to be wrong. Yet each agency had an argument for its position, because each addressed the issue from a very different perspective:

      a. FASB’s pre-2006 rule that stock options are not a real cost to corporations reflected first, the fact that the options have zero cash cost to the companies, and second that options neither decreases a company’s assets nor increased its liabilities. All in all, a seemingly airtight case.

      b. In contrast, the IRS concluded (and continues to conclude) that because exercised options are treated as taxable wages to employees, “symmetry” requires that they be treated as tax-deductible wages for employers.

      In CTJ’s view, FASB’s pre-2006 position (no book expense) was right,[1] and the IRS’s position (employer tax deduction) is wrong.

      While the IRS is wrong about stock options, its “symmetry” argument was not pulled out of the air. The tax code often does try to match income received by workers with a corresponding deduction for employers. But that’s not always the correct answer (or what the tax code specifies).

      For example, if an airline allows its workers to fly free or at a discounted price on flights that aren’t full (for vacations, etc.), then the workers ought to be taxed on that fringe benefit, even though the airline incurs no measurable cost in providing it. But no one has ever suggested that airlines should get a tax deduction (beyond actual cost) for letting their employees fly for free or at a discounted price.

      In the case of stock options, there is a clear economic benefit to the employees (if the stock goes up in value), but a zero cost to the the employer. So it’s more reasonable to conclude that while employees should be taxed on stock option benefits (“all income from whatever source derived” as the tax code states), employers should only be able to deduct their cost of providing those benefits, which is zero.

      A final argument, made by some economists, is that a corporate write-off for stock options (book and tax) is appropriate because of the theoretical cost to a company’s shareholders when new stock is issued at a discounted price to employees. For example, suppose a company has 100 shares of stock outstanding, worth $10 a share. If the company gives its CEO 100 shares of newly issued stock for free, then the value of the other 100 shares ought to fall to only $5 a share.

      But in real life, this potential “dilution” effect on stock prices to shareholders is typically quite minor. In the case of stock options, any dilution “cost” is even smaller, if not nonexistent, since the “cost” occurs only when the price of the stock has gone up!

      Most important, just because a company does something that has a cost to its shareholders does not mean that it should or does generate either a book expense or a tax deduction for the company. For example, suppose a company’s stock is selling at $10 a share. The company, in need of more cash, issues a large block of new stock at $9 a share to attract a prominent new investor (say Warren Buffett). The pre-existing shareholders are theoretically hurt by this discount, but it doesn’t generate a book cost to the company or a tax deduction

      The bottom line is that there’s something obviously wrong with a tax loophole that lets highly profitable companies make more money after tax than before tax. What’s about to happen at Facebook offers a perfect illustration of why non-cash “expenses” for stock options should not be tax deductible — or book deductible either.

Photo of Facebook Logo via Dull Hunk and photo Mark Zuckerberg via KK+ Creative Commons Attribution License 2.0

[1]Unfortunately, in 2006, FASB responded to political pressure and muddied its previously-correct  position. Starting it 2006, FASB required companies to book an expense in calculating profits reported to shareholders for the estimated future value of stock options to their recipients. This new book write-off is calculated when the options are issued, well before the true value at exercise can possibly be known. Not surprisingly (since corporations want to report high profits to their shareholders), these book write-off estimates are always wrong, and are generally much lower than the tax-deductible amount.

        This new financial treatment of options is widely derided by stock analysts. Indeed, companies for which options are significant go to great pains to encourage investors and analysts to ignore these non-cash “expenses” in evaluating the companies’ earnings — often offering an alternative earnings report that ignores them.

]]> The Revenue Impacts of the Buffett Rule and Other Policy Options tag:ctj.org,2012:/ctjreports//7.5925 2012-02-01T18:46:40Z 2012-02-01T21:50:29Z The revenue impact of the Buffett Rule, as proposed by President Obama, depends on how it is implemented and whether or not the Bush tax cuts are extended again. Ending the breaks for investment income in the personal income tax would be a more straightforward approach that raises more revenue. The revenue impact of the Buffett Rule, as proposed by President Obama, depends on how it is implemented and whether or not the Bush tax cuts are extended again. Ending the breaks for investment income in the personal income tax would be a more straightforward approach that raises more revenue.

Read the report.


]]> The President's Speech: Right about Stopping Offshore Tax Dodgers, Wrong about Cutting Taxes for Other Corporations tag:ctj.org,2012:/ctjreports//7.5896 2012-01-26T18:56:31Z 2012-01-27T02:05:29Z During his State of the Union address, President Obama said that "no American company should be able to avoid paying its fair share of taxes by moving jobs and profits overseas." We couldn't agree more. However, his proposed solutions, which the administration fleshed out with a fact sheet on Wednesday, fail to raise revenue, retain and expand the loopholes that allow corporations to avoid taxes, and mark a further retreat from earlier, stronger proposals. Read the PDF of this report.

During his State of the Union address, President Obama said that “no American company should be able to avoid paying its fair share of taxes by moving jobs and profits overseas.” We couldn’t agree more. However, his proposed solutions, which the administration fleshed out with a fact sheet[1] on Wednesday, fail to raise revenue, retain and expand the loopholes that allow corporations to avoid taxes, and mark a further retreat from earlier, stronger proposals.

Raising Revenue Should Be the Main Goal of Corporate Tax Reform

The administration says it will unveil a corporate tax reform plan in February and that this plan will be “revenue-neutral,” meaning any revenue saved from closing loopholes will be given back to corporations in the form of a reduction in their tax rate or in the form of new tax loopholes. The proposals presented during the President’s speech are just a few reforms that he says Congress can act on “immediately” and are also revenue-neutral when taken together.

In a revenue-neutral reform, Congress could close loopholes that allow companies like G.E. to avoid federal taxes, but could cut taxes for a company like Walmart that currently has an effective tax rate of 30 percent. But what’s the point of getting G.E. to pay taxes if we’re just going to give the money to Walmart?

The U.S. is in desperate need of revenue to fund public services and public investments that create jobs, so any “reform” of the corporate tax that fails to raise revenue would be largely pointless.

In May, 250 organizations, including groups in every state, sent a letter urging Congress to enact a revenue-positive reform of the corporate income tax.[2] The letter explains,

Some lawmakers have proposed to eliminate corporate tax subsidies and use all of the resulting revenue savings to pay for a reduction in the corporate income tax rate. In contrast, we strongly believe most, if not all, of the revenue saved from eliminating corporate tax subsidies should go towards deficit reduction and towards creating the healthy, educated workforce and sound infrastructure that will make our nation more competitive.

CTJ also published a one-page fact sheet and a detailed report explaining why Congress should enact a revenue-positive corporate tax reform.[3]

The President Is Retreating in the Battle Over Tax Dodging

Each year, President Obama has scaled back his proposals to limit the tax break that encourages U.S. corporations to shift jobs and profits offshore.

This tax break is the loophole that allows U.S. corporations to “defer” U.S. taxes on their offshore profits until those profits are brought to the U.S. (i.e., until those profits are “repatriated”). Often these profits remain offshore for years and many U.S. corporations say they have no plans to repatriate those profits ever.

This “deferral” of U.S. taxes on offshore profits provides an incentive for U.S. corporations to shift operations and jobs to a lower tax country, or just use accounting gimmicks to make their U.S. profits appear to be “foreign” profits generated in offshore tax havens.

The only true solution is to repeal deferral,[4] but President Obama never went that far. His first budget included proposals to limit the worst abuses of deferral.[5]

The following year, the President’s budget included a scaled back version of these proposals. He notably dropped one idea to limit the arcane-sounding “check-the-box” rules that allow U.S. corporations to route profits through different countries and present conflicting information to different governments in order to avoid paying taxes to any government.

This year, the President seems to have narrowed that list just to one proposal: Prevent U.S. corporations from using “intangible” property to shift their profits into tax havens. This is a step in the right direction, but it’s certainly not sufficient.

U.S. multinational corporations can often use intangible assets to make their U.S. income appear to be “foreign” income. For example, a U.S. corporation might transfer a patent for some product it produces to its subsidiary in another country, say the Cayman Islands, that does not tax the income generated from this sort of asset. The U.S. parent corporation charges an artificially low price for the asset and will then pay artificially high fees to its subsidiary in the Cayman Islands for the use of this patent.

When it comes time to pay U.S. taxes, the U.S. parent company will claim that it’s subsidiary made huge profits by charging for the use of the patent it holds, and that because those profits were allegedly earned in the Cayman Islands, U.S. taxes on those profits are deferrable (not due). Meanwhile, the parent company says that it made little or no profit because of the huge fees it had to pay to the subsidiary in the Cayman Islands.

Part of the President’s proposal would crack down on the first step of this scheme by requiring a U.S. company to charge a more realistic price for the intangible property that it transfers to an offshore subsidiary.

Another part of the proposal would crack down the second step of this scheme by barring deferral on the income generated by the offshore subsidiary in certain circumstances. The U.S. parent company would not be allowed to defer the “excess” profits generated from the intangible asset by an offshore subsidiary in a low-tax country. Obviously, the effectiveness of this reform will depend an awful lot on how “excess profits” and “low-tax country” are defined.

Giving the Revenue Back to Corporations

Under the President’s proposals, the revenue raised from cracking down on “intangibles” would be used to offset the cost of new tax breaks. One would extend a temporary “stimulus” rule allowing companies to immediately deduct (“expense”) all investments in plants and equipment. Another would reward investment in communities hit by major job losses. Another subsidizes so-called “research” and still another cuts taxes on clean energy projects.

Some of these are among the loopholes that allowed 30 of the Fortune 500 companies to completely avoid paying corporate taxes over the past three years.[6]

A big problem with all of these breaks is that they don’t result in investment or job creation. Businesses make investments and hire people when they think that doing so will result in profit. A tax break cannot help a business to profit, because a business does not even pay taxes if it has no profits.

Taxes are a percentage of profits, so a tax cut won’t make a unprofitable company become profitable, and taxes don’t make a profitable company become unprofitable.

Tax cuts for certain activities certainly can affect decisions. For example, if we want investors to focus more on clean energy than fossil fuels, then tax breaks for clean energy are a step in that direction, although the same goal could be accomplished through direct spending instead of a tax cut.

A Minimum Tax for Offshore Corporate Profits?

The fact sheet released from the White House says that the President proposes “ensuring that all American companies pay a minimum tax on their overseas profits, preventing other countries from attracting American business through unusually low tax rates.”

The simplest way to get U.S. multinational corporations to pay taxes and end tax breaks for outsourcing would be to repeal deferral. Why does the President want these companies to pay a “minimum tax” when we could instead just require them to pay the full U.S. corporate tax that they are now avoiding through deferral?

Perhaps the most alarming possibility is that such a minimum tax could be a cover for moving in quite the opposite direction. A “minimum tax” on offshore income could describe the plan released in October by Republican House Ways and Means chairman Dave Camp to exempt almost all offshore profits of U.S. corporations from U.S. taxes. (This is often called a “territorial” tax system.)

Camp’s proposal includes a tiny tax of just 1.25 percent on offshore profits. Hopefully, this is not the “minimum tax” the President is thinking about.

 

[1] White House, “President Obama’s Blueprint to Support U.S. Manufacturing Jobs, Discourage Outsourcing, and Encourage Insourcing,” January 25, 2012. http://www.whitehouse.gov/the-press-office/2012/01/25/fact-sheet-president-obama-s-blueprint-support-us-manufacturing-jobs-dis

[2] Letter to Congress, May 18, 2011. http://www.ctj.org/pdf/corptaxletter.pdf

[3] Citizens for Tax Justice, “Fact Sheet: Why Congress Can and Should Raise Revenue through Corporate Tax Reform,” November 3, 2011. http://ctj.org/pdf/corporatefactsheet.pdf; Citizens for Tax Justice, “Revenue-Positive Reform of the Corporate Income Tax,” January 25, 2011. http://www.ctj.org/pdf/corporatetaxreform.pdf

[4] Citizens for Tax Justice, “Congress Should End ‘Deferral’ Rather than Adopt a ‘Territorial’ Tax System,” March 23, 2011. http://www.ctj.org/pdf/internationalcorptax2011.pdf

[5] Citizens for Tax Justice, “Obama’s Proposals to Address Offshore Tax Abuses Are a Good Start, but More Is Needed,” May 20, 2009. http://www.ctj.org/pdf/offshoretax20090508.pdf

[6] Citizens for Tax Justice, “Corporate Taxpayers & Corporate Tax Dodgers, 2008-2010,” November 3, 2011. http://ctj.org/corporatetaxdodgers

]]> GOP Presidential Candidates' Tax Plans Favor Richest in South Carolina tag:ctj.org,2012:/ctjreports//7.5858 2012-01-19T19:22:39Z 2012-01-19T22:24:34Z The cost of the tax plans proposed by Republican presidential candidates would range from $6.6 trillion to $18 trillion over a decade. Of the tax cuts going to South Carolina residents, almost half or more would go to richest five percent under these plans. The average tax cut received by the richest one percent of the state's residents would be up to 163 times as large as the average tax cut received by middle-income residents of the state. The cost of the tax plans proposed by Republican presidential candidates would range from $6.6 trillion to $18 trillion over a decade. Of the tax cuts going to South Carolina residents, almost half or more would go to richest five percent under these plans. The average tax cut received by the richest one percent of the state’s residents would be up to 163 times as large as the average tax cut received by middle-income residents of the state.

Read the report.

]]> What the President's Council on Jobs and Competitiveness Got Wrong about Corporate Taxes tag:ctj.org,2012:/ctjreports//7.5847 2012-01-18T22:10:04Z 2012-01-20T17:38:51Z President Obama's jobs council has released a report full of recommendations, including somewhat misguided points on the federal corporate income tax. The report rightly points out that the corporate income tax is full of loopholes that should be closed, but fails to call for a reform that actually raises revenue to support under-funded public services and investments. The report also perpetuates some misunderstandings about the effects of the U.S. corporate income tax on our economy and on working people. Read the pdf of this report.

President Obama’s jobs council has released a report full of recommendations, including somewhat misguided points on the federal corporate income tax. The report rightly points out that the corporate income tax is full of loopholes that should be closed, but fails to call for a reform that actually raises revenue to support under-funded public services and investments. The report also perpetuates some misunderstandings about the effects of the U.S. corporate income tax on our economy and on working people.

What the Council Got Right: There Are Too Many Corporate Tax Loopholes

The report does make valuable points. For example, it explains that

…the business tax system—which often applies to non-corporate businesses as well as corporate businesses—has numerous provisions for special deductions, credits, and other tax expenditures that benefit certain activities. These provisions reduce the effective tax rate below the statutory rate. In addition, these provisions also result in very different marginal tax rates applying to seemingly similar types of business activities.

The report also explains that “because certain assets and investments are tax-favored, tax considerations can drive overinvestment in those assets at the expense of more economically productive investments.” In other words, companies and investors are making decisions to get special tax breaks instead of just providing whatever goods or services people actually want.

Missing the Most Important Point: Corporations Need to Pay More in Taxes

Unfortunately, the report proposes, at least implicitly, the wrong solution, when it says, “Reducing the corporate tax rate and broadening the base would reduce these distortions and create a more level playing field among alternative investments.”

Reducing the statutory corporate income tax rate slightly might be acceptable, but only if Congress also closes so many loopholes that corporations altogether pay a lot more in taxes than they do today. In other words, corporate tax reform should be revenue-positive.

Presumably, the council is following the lead of President Obama and many Congressional leaders and calling for a corporate tax reform that is revenue-neutral. In other words, President Obama would close corporate tax loopholes, but he would use all of the resulting revenue savings to offset a reduction in the corporate income tax rate.

In May, 250 organizations, including groups in every state, sent a letter urging Congress to enact a revenue-positive reform of the corporate income tax. The letter explains,

Some lawmakers have proposed to eliminate corporate tax subsidies and use all of the resulting revenue savings to pay for a reduction in the corporate income tax rate. In contrast, we strongly believe most, if not all, of the revenue saved from eliminating corporate tax subsidies should go towards deficit reduction and towards creating the healthy, educated workforce and sound infrastructure that will make our nation more competitive.

CTJ also published a one-page fact sheet and a detailed report explaining why Congress should enact a revenue-positive corporate tax reform.

The Myth of America’s “Uncompetitive” Corporate Tax

The report makes much of the fact that the U.S. has one of the highest statutory corporate income tax rates, even though it later admits that the effective corporate tax rate (what corporations actually pay as a percentage of their income after accounting for all the tax loopholes) is much lower.

The report declares that the U.S. must reduce its corporate income tax rate so that U.S. and foreign corporations will want to invest in America.

The increased mobility of capital and the rise of multinational companies suggest that the appropriate corporate income tax rate is likely to be lower today than in the past. This is broadly consistent with the downward trend in corporate tax rates around the world during the last three decades.

If this is true, how exactly would the council explain the finding in CTJ’s major study on corporate taxes that most profitable U.S. multinational corporations are actually taxed at higher rates by foreign governments than by the U.S.?

A section of the CTJ study, starting on page 10, focuses on most of the Fortune 500 corporations that were profitable for each of the last three years and received at least 10 percent of their profits from overseas. Of these 134 corporations, 87 of them paid a lower effective tax rate in the U.S. than in the other countries where they had profits, while just 47 paid a higher effective tax rate in the U.S.

Who Ultimately Pays Corporate Income Taxes? The Shareholders, Not Workers

The report from the President’s jobs council also claims that “workers bear a rising share of the burden of the corporate income tax in the form of reduced employment opportunities and lower wages.”

This is certainly wrong. Corporate income taxes, when they are paid, are ultimately borne by corporate shareholders in the form of reduced stock dividends, and by the owners of business assets generally when the price of those assets are affected.

Corporate leaders sometimes claim publicly that corporate taxes are really borne by workers because these taxes drive the companies to move jobs offshore to lower-tax jurisdictions. But corporate leaders would not lobby for Congress to lower these taxes if they did not think their shareholders were the people ultimately paying them.

Several researchers have concluded that the owners of stock and other capital do bear most of the burden of corporate taxes.

Jobs Council Divided Over “Territorial” System (Exempting Offshore Profits)

The report explores a shift to a “territorial” tax system, but also acknowledges that members of the council were in disagreement over the issue. A “territorial” tax system is a euphemism for exempting offshore profits from taxes, and it would only increase the existing incentives for corporations to shift their profits into tax havens.

This section of the report begins:

Many members of the Council believe the United States should move to a territorial system of taxing corporate income akin to the practices of the other developed economies. Territoriality would eliminate the so-called “lock-out” effect in the current worldwide system of taxation that discourages repatriation and investment of the foreign earnings of U.S. companies in the United States.

Translation: The corporate CEOs on the President’s jobs council want Congress to exempt their companies’ offshore profits from U.S. taxes. The “lock-out” effect is actually the result of an existing tax break for corporations that shift investments offshore — a tax break that should be repealed.

This existing tax break is the rule that allows U.S. corporations to “defer” U.S. taxes on their offshore profits until those profits are brought to the U.S. (until they are “repatriated”). Often these profits remain offshore for years and the U.S. corporation may have no plans to repatriate them ever.

This “deferral” of U.S. taxes on offshore profits provides an incentive for U.S. corporations to shift operations and jobs to a lower tax country, or just use accounting gimmicks to make their U.S. profits appear to be “foreign” profits generated in offshore tax havens.

These incentives for corporations to shift jobs and profits offshore would only increase if their offshore profits were entirely exempt from U.S. taxes, as would be the case under a territorial tax system. The solution to end the “lock-out” effect is to repeal “deferral.”

As the report acknowledges, “Some members of the Council, however, disagree with this point of view [that the U.S. should adopt a territorial system], arguing that a territorial system of taxing corporate income would strengthen incentives for companies to move investment and employment to lower-tax jurisdictions.”

In October, when there were rumors that the Congressional “Super Committee” might propose a corporate tax reform, several national organizations and labor unions sent a letter to the committee members urging them to reject any proposal for a territorial tax system.

A CTJ fact sheet explains why Congress should repeal deferral rather than adopt a territorial system, and this CTJ report makes the same argument in more detail.

]]> Representation Without Taxation: Fortune 500 Companies that Spend Big on Lobbying and Avoid Taxes tag:ctj.org,2012:/ctjreports//7.5833 2012-01-18T16:03:36Z 2012-01-19T16:35:14Z Marking the second anniversary of the Supreme Court's decision in the Citizens United vs. Federal Election Commission case, this report takes a hard look at the lobbying activities of profitable Fortune 500 companies that exploit loopholes and distort the tax code to avoid billions of dollars in taxes. Marking the second anniversary of the Supreme Court’s decision in the Citizens United vs. Federal Election Commission case, this report takes a hard look at the lobbying activities of profitable Fortune 500 companies that exploit loopholes and distort the tax code to avoid billions of dollars in taxes.

Full Report Here

Press Release Here

We identify the “Dirty Thirty” companies that were especially aggressive at dodging taxes and lobbying Congress. These companies so deftly exploited carve outs and loopholes in the tax code that all but one of them enjoyed a negative tax rate over the three year period of the study, while spending nearly half a billion dollars to lobby Congress on issues including tax policy. Altogether they collected $10.6 billion in tax rebates from the federal government.

Ordinary American taxpayers and small businesses must pick up the tab when major corporations avoid their taxes. Spread out over every individual tax filer in America, the taxes avoided by the Dirty Thirty break down to an average of $481 per taxpayer over the three years.

A total 280 profitable Fortune 500 companies collectively paid an effective federal income tax rate of 18.5 percent, about half of the statutory 35 percent corporate tax rate, while receiving $223 billion in tax subsidies.

These corporations include most of the Fortune 500 companies that were consistently profitable from 2008 through 2010. Collectively they paid $250.8 billion in federal income taxes on a total of $1,352.8 billion in U.S. profits. If they had paid the statutory 35 percent tax on their profits, they would have paid an extra $223 billion. There are thousands of perfectly legal ways that corporations, with the help of armies of high-paid lawyers and accountants, can reduce their tax burden

These 280 companies spent a total of $2 billion lobbying on tax and other issues between 2008 and 2010.

The report explains why exploiting offshore tax havens is an example of tax dodging at its worst and that at least 22 of the Dirty Thirty reported subsidiaries in offshore tax havens like the Cayman Islands. Since profit artificially shifted offshore is often counted as “foreign” profits, the data likely underestimates the amount lost due to tax havens.

To stop the abusive use of tax havens, we lawmakers must end rules allowing U.S. companies to defer taxes on their offshore profits. In the meantime, there are concrete steps Congress can take that would stop the worst of the abuses by requiring more honest rules and reporting.

To limit corporate money in elections, lawmakers should:

  • Require full and honest disclosure – the public should know who is funding what candidates
  • Empower shareholders – the shareholders that own corporations should have a say in how corporations spend their money on elections
  • Reverse Citizens United

Full Report Here

]]> GOP Presidential Candidates' Tax Plans Favor Richest 1 Percent tag:ctj.org,2012:/ctjreports//7.5802 2012-01-06T14:42:31Z 2012-01-06T15:44:13Z State-by-State Figures Included: The cost of the tax plans proposed by Republican presidential candidates would range from $6.6 trillion to $18 trillion over a decade. The share of tax cuts going to the richest one percent of Americans under these plans would range from over a third to almost half. The average tax cuts received by the richest one percent would be up to 270 times as large as the average tax cut received by middle-income Americans. State-by-State Figures Included
The cost of the tax plans proposed by Republican presidential candidates would range from $6.6 trillion to $18 trillion over a decade. The share of tax cuts going to the richest one percent of Americans under these plans would range from over a third to almost half. The average tax cuts received by the richest one percent would be up to 270 times as large as the average tax cut received by middle-income Americans.

Read the report.

]]> GOP Presidential Candidates' Tax Plans Favor Richest in New Hampshire tag:ctj.org,2012:/ctjreports//7.5803 2012-01-06T14:20:08Z 2012-01-06T15:45:41Z The cost of the tax plans proposed by Republican presidential candidates would range from $6.6 trillion to $18 trillion over a decade. Of the tax cuts going to New Hampshire residents, the share going to the richest one percent would range from a third to 43 percent under these plans. The average tax cuts received by the richest one percent of the state's residents would be up to 200 times as large as the average tax cut received by middle-income residents of the state. The cost of the tax plans proposed by Republican presidential candidates would range from $6.6 trillion to $18 trillion over a decade. Of the tax cuts going to New Hampshire residents, the share going to the richest one percent would range from a third to 43 percent under these plans. The average tax cuts received by the richest one percent of the state’s residents would be up to 200 times as large as the average tax cut received by middle-income residents of the state.

Read the report.


]]> GOP Presidential Candidates' Tax Plans Favor Richest Iowans tag:ctj.org,2012:/ctjreports//7.5792 2012-01-03T15:27:11Z 2012-01-03T16:51:03Z Three Republican candidates for president have released tax proposals with enough detail for CTJ to estimate their effects, and all three would give greater tax cuts to Iowa's highest earners, whether measured in dollar terms or as a percentage of taxpayer's income. Under any of these three plans - Romney's, Gingrich's or Perry's - the richest one percent of Iowa's taxpayers would receive the largest share of the tax cuts. Three Republican candidates for president have released tax proposals with enough detail for CTJ to estimate their effects, and all three would give greater tax cuts to Iowa's highest earners, whether measured in dollar terms or as a percentage of taxpayers’ income.  Under any of these three plans - Romney's, Gingrich's or Perry's - the richest one percent of Iowa’s taxpayers would receive the largest share of the tax cuts.

CTJ's new analysis is here.

]]> Corporate Tax Dodging in the Fifty States, 2008-2010 tag:ctj.org,2011:/ctjreports//7.5718 2011-12-07T05:21:30Z 2012-01-26T23:20:15Z 68 of the 265 Fortune 500 companies profiled paid no state corporate income tax in at least one of the last three years and 20 of them averaged a tax rate of zero or less during the 2008-2010 period. NEW REPORT: 265 Major, Profitable U.S. Corporations’ Tax Avoidance Costs States $42 Billion Over Three Years

“Corporate Tax Dodging in the Fifty States, 2008-2010” follows up on “Corporate Taxpayers and Corporate Tax Dodgers, 2008-2010” which was published in November by Citizens for Tax Justice (CTJ) and the Institute on Taxation and Economic Policy (ITEP). The two groups released their first major study on the federal income taxes that large, profitable American corporations pay on their U.S. pretax profits in 1984.

“Our report shows these 265 corporations raked in a combined $1.33 trillion in profits in the last three years, and far too many have managed to shelter half or more of their profits from state taxes,” said Matthew Gardner, Executive Director at the Institute on Taxation and Economic Policy and the report’s co-author. “They’re so busy avoiding taxes, it’s no wonder they’re not creating any new jobs.”

68 of the 265 Fortune 500 companies profiled paid no state corporate income tax in at least one of the last three years and 20 of them averaged a tax rate of zero or less during the 2008-2010 period.

Among the 20 corporations paying zero or less in state corporate income taxes over the three year period are: Utility provider Pepco Holdings (DC); pharmaceutical giant Baxter International (IL); chemical maker DuPont (DE); fast food behemoth Yum Brands (KY); high tech manufacturer Intel (CA).

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]]> State-by-State Figures on Proposed 3.25 Percent Surcharge on Millionaires tag:ctj.org,2011:/ctjreports//7.5704 2011-11-30T22:27:37Z 2011-12-01T17:55:59Z The one-fifth of one percent of taxpayers affected by the Senate Democrats' proposed millionaire surcharge would pay 2.1 percent of their incomes in higher taxes, on average, under the proposal. The one-fifth of one percent of taxpayers affected by the Senate Democrats’ proposed millionaire surcharge would pay 2.1 percent of their incomes in higher taxes, on average, under the proposal.

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]]> A More Effective Alternative to the Democrats' Payroll Tax Cut tag:ctj.org,2011:/ctjreports//7.5703 2011-11-30T22:24:52Z 2011-12-01T17:59:50Z Government spending measures are the best way to reduce unemployment, but if lawmakers insist on using tax policy instead, they should revive the Making Work Pay Credit, as some Senators have discussed recently. Government spending measures are the best way to reduce unemployment, but if lawmakers insist on using tax policy instead, they should revive the Making Work Pay Credit, as some Senators have discussed recently.

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]]> State-by-State Estate Tax Figures Show that President's Plan Is Too Generous to Millionaires tag:ctj.org,2011:/ctjreports//7.5668 2011-11-18T22:31:04Z 2011-11-18T22:32:29Z Only 0.3 percent of deaths in the U.S. in 2009 resulted in federal estate tax liability. This provides a rough approximation of the impact that President Obama's estate tax proposal would have, because the estate tax rules in effect in 2009 are the same rules that President Obama has proposed to make permanent. Only 0.3 percent of deaths in the U.S. in 2009 resulted in federal estate tax liability. This provides a rough approximation of the impact that President Obama’s estate tax proposal would have, because the estate tax rules in effect in 2009 are the same rules that President Obama has proposed to make permanent. A more sensible alternative is the estate tax proposal announced yesterday by Congressman Jim McDermott.

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]]> Corporate Taxpayers & Corporate Tax Dodgers, 2008-2010 tag:ctj.org,2011:/ctjreports//7.5519 2011-11-03T04:21:03Z 2012-01-26T23:20:57Z NEW REPORT: 280 Most Profitable U.S. Corporations Shelter Half Their Profits from Taxes. "These 280 corporations received a total of nearly $224 billion in tax subsidies," said Robert McIntyre, Director at Citizens for Tax Justice and the report's lead author. "This is wasted money that could have gone to protect Medicare, create jobs and cut the deficit." NEW REPORT: 280 Most Profitable U.S. Corporations Shelter Half Their Profits from Taxes.

“These 280 corporations received a total of nearly $224 billion in tax subsidies,” said Robert McIntyre, Director at Citizens for Tax Justice and the report’s lead author. “This is wasted money that could have gone to protect Medicare, create jobs and cut the deficit.”

  • 30 Companies average less than zero tax bill in the last three Years, 78 had at least one no-tax year.

  • Financial services received the largest share of all federal tax subsidies over the last three years. More than half the tax subsidies for companies in the study went to four industries: financial services, utilities, telecommunications, and oil, gas & pipelines.

  • U.S. corporations with significant foreign profits paid tax rates to foreign countries that were almost a third higher than they paid to the IRS on their domestic profits.

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]]> How to Implement the Buffett Rule tag:ctj.org,2011:/ctjreports//7.5466 2011-10-19T20:26:44Z 2011-10-20T13:48:13Z A change in the Medicare tax that was enacted last year as part of health care reform will take an important but limited first step towards implementing President Obama's "Buffett Rule," the principle that tax laws should not allow millionaires to pay a smaller percentage of their income in federal taxes than do middle-class taxpayers. To further implement the Buffett Rule, Congress could end the existing income tax preference for capital gains and dividends or enact the type of surcharge for income exceeding $1 million that Senate Democrats recently proposed. A change in the Medicare tax that was enacted last year as part of health care reform will take an important but limited first step towards implementing President Obama’s “Buffett Rule,” the principle that tax laws should not allow millionaires to pay a smaller percentage of their income in federal taxes than do middle-class taxpayers. To further implement the Buffett Rule, Congress could end the existing income tax preference for capital gains and dividends or enact the type of surcharge for income exceeding $1 million that Senate Democrats recently proposed.

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