Citizens for Tax Justice
July 22, 1997
Tax bills currently under consideration by a House-Senate conference committee contain huge new corporate tax loopholes that will cost more than $157 billion over the next 10 years if all are adopted. A list of the largest proposed new corporate-giveaway provisions in the tax bills was compiled by Citizens for Tax Justice, based on official congressional documents.
"The tax plans make a mockery of House Budget Committee Chairman John Kasich's pledge earlier this year to crack down on corporate subsidies," noted Robert S. McIntyre, director of Citizens for Tax Justice.
In January, Rep. Kasich (R-Ohio) held a well-publicized press conference with Ralph Nader and others, at which he loudly promised to crack down on corporate subsidy programs costing an estimated $2.5 billion a year. Few if any of those measures are likely to be adopted.
But Kasich now enthusiastically supports the House version of the tax plan, which includes $144 billion in proposed new special-interest corporate tax breaks, by CTJ's tally. The Senate plan, which partially overlaps the House version, includes about $23 billion in new corporate tax breaks over ten years.
Some of the major special-interest loophole provisions in the tax bills include:
Officially, the proposed minimum tax reductions are supposed to reduce federal revenues by $22.2 billion over the next decade. CTJ estimates, however, that because the weakening of the minimum tax will encourage corporations to take more advantage of loopholes in the regular tax code, the cost of the minimum tax cuts will more likely exceed $71 billion over ten years.
Even some of the few loophole-closing provisions in the tax bills have been tailored to meet the needs of special interests. For example, a House proposal to end the tax exemption for TIAA/CREF, the non-profit company that manages college professors' pension plans, was inserted by Ways and Means Chairman Bill Archer (R-Tex.), reportedly at the behest of the Variable Annuity Life Insurance Company. VALIC is a Texas-based insurance company, whose corporate parent reportedly is an Archer campaign supporter and also donated $115,000 in soft money to the Republican National Committee. VALIC says it hopes to obtain some of the teachers' pension business if TIAA/CREF loses its tax exemption.
Another example: provisions in both the House and Senate bills designed to crack
down on "Morris Trust" corporate tax-shelter schemes were carefully designed to avoid
affecting a Disney deal conveniently announced just days before the new law is slated to
become effective--thereby reportedly saving Disney a staggering $600 million.(1)
CTJ called on President Clinton to resist congressional attempts to expand corporate subsidies. "This year is supposed to be about balancing the budget fairly," noted McIntyre. "Not about enriching powerful interests at the expense of average taxpayers."
A table listing 26 of the major special interest corporate giveaways in the tax bills is
attached as Appendix I.
Further details on the House plan to repeal most of the
corporate Alternative Minimum Tax are in Appendix II.
Further details on the House plan to repeal most of the corporate Alternative Minimum Tax are in Appendix II.
Return of the No-Tax Corporations?
Leading the list of proposed new corporate-welfare loopholes in the tax plans is a House proposal to eliminate most of the corporate Alternative Minimum Tax. The minimum tax acts as a back-up to the regular corporate income tax, and is designed to assure that profitable corporations pay at least some income tax even if they have a plethora of loopholes.(2)
According to a analysis by CTJ, many of the corporations that have been pushing Congress to gut the minimum tax are once-and-perhaps-future "corporate freeloaders," that is, they paid little or nothing in federal income taxes before reforms in 1986 made the minimum tax more effective.
CTJ's corporate tax reports covering 1982 to 1985 include 16 of the 26 corporate members of a so-called "AMT Working Group," which was set up in 1993 to lobby for reductions in the corporate minimum tax. Over those four pre-tax-reform years, the average effective federal income tax rate on these 16 companies was a minuscule 1.4%. As a group, the 16 companies enjoyed a total of 22 no-tax (but profitable) years from 1982 to 1985.
Thirteen of the 16 companies enjoyed at least one year from 1982 to 1985 in which they paid nothing (or less) in federal income taxes (despite considerable profits). Six companies enjoyed multiple profitable no-tax years.
Six of the 16 companies paid a total of less than nothing in federal income taxes over the four years prior to tax reform.
Only 4 of the 16 companies paid more than 10 percent of their profits in federal income taxes from 1982 to 1985.
More recent corporate annual reports from some of the "AMT Working Group" members show the effects of the current Alternative Minimum Tax. Many of them would pay nothing at all in federal income taxes without the corporate minimum tax. For more information, look at CTJ's 1995 congressional testimony on the AMT.
1. When it became clear that action would be taken to curb the "Morris trust" loophole, Disney rushed on April 7 to announce its plans to utilize it in connection with the sale of its newspaper holdings. Although the crackdown on "Morris trusts" is generally effective for deals consummated after April 16, 1997, a "transition rule" exempts, among other things, deals "described on or before such date in a public announcement"--a rule that conveniently applies to Disney's hurried announcement.
2. The official summary of the Tax Reform Act of 1986 states:
"Congress concluded that the minimum tax should serve one overriding objective: to ensure that no taxpayer with substantial economic income can avoid significant tax liability by using exclusions, deductions, and credits. . . . It is inherently unfair for high-income taxpayers to pay little or no tax due to their ability to utilize tax preferences."