Nothing better shows corporate control over the government than Washington’s basic response to the current economic crisis. First we had “the rescue” and then “the recovery.” Trillions in public money flowed to the biggest US banks, insurance companies, etc. That “bailed” them out (suggestion of criminality?) while we waited for benefits to “trickle down” to the rest of us. As usual, the “trickle down” part has not happened. Large corporations and their investors kept the government’s money for themselves; their profits and stock market “recovered” nicely. We get unemployment, home-foreclosures, job benefit cuts, and growing job insecurity. As the crisis hits states and cities, politicians avoid raising corporate taxes in favor of cutting government services and jobs.
Might government bias favoring corporations be deserved, a reward for taxes they pay? No: corporations — especially the larger ones — have avoided taxes as effectively as they have controlled government expenditures to benefit them.
Compare income taxes received by the federal government from individuals and from corporations (their profits are treated as their income). The table below (in millions of dollars) is based on statistics from the Office of Management and the Budget in the White House:1
|Year||Total Individual Income Taxes||Total Corporate Income Taxes|
The overall picture is unmistakable. The trend is clear. During the Great Depression federal income tax receipts from individuals and corporations were roughly equal. During World War Two, income tax receipts from corporations were 50 % greater than from individuals. The national crises of depression and war produced successful popular demands for corporations to contribute significant portions of federal tax revenues.
US corporations resented that arrangement, and after the war, they changed it. Corporate profits financed politicians’ campaigns and lobbies to make sure that income tax receipts from individuals rose faster than those from corporations and that tax cuts were larger for corporations than for individuals. By the 1980s, individual income taxes regularly yielded four times more than taxes on corporations’ profits.
Since World War 2, corporations have shifted much of the federal tax burden from themselves to the public, especially onto the middle-income members of the public.2 No wonder a tax “revolt” developed. Yet the “revolt” did not push to stop, let alone reverse, that shift. Corporations had focused public anger elsewhere, against government expenditures as “wasteful” and against public employees as “inefficient.” Organizations such as Chambers of Commerce and corporations’ academic and political allies together shaped the public debate. They did not want it to be about who does and does not pay the taxes. Instead, they steered the “tax revolt” against taxes in general — on businesses and all individuals alike. The corporations’ efforts saved them far more in reduced taxes than the costs of their political contributions, lobbyists, and public relations campaigns.
At the same time, corporations also lobbied successfully for many loopholes in the tax laws. The official federal tax rate on profits is now around 35% for large corporations who theoretically have to pay additional state taxes on their profits and local taxes on their property (land, buildings, business inventories, etc.). Those official and theoretical tax obligations have been used to support conservatives’ claims that corporations pay half or more of their profits to federal, state, and local levels of government combined. However, because of loopholes, the truth is very different. Corporations’ — and especially large corporations’ — actual tax payments are far lower than their official, theoretical obligations.
The most comprehensive recent study of what larger corporations actually pay by three academic accountants — professors at Duke, MIT, and the University of North Carolina — gets at that truth. It examined a large sample of corporations. Their average turned out to be a rate of total taxation (federal, state, and local combined) below 30 %.3 The study concluded: “We find a significant fraction of firms that appear to be able to successfully avoid large portions of the corporate income tax over sustained periods of time. Using a ten-year measure of tax avoidance, 546 firms, comprising 26.3 percent of our sample, are able to maintain a cash effective tax rate of 20 percent or less. The mean firm has a ten-year cash effective tax rate of approximately 29.6 percent.”
General Electric (GE) deserves special mention. The New York Times reported that its total tax payment amounted to 14.3% over the last five years.4 Citizens for Tax Justice promptly corrected it: the profits tax it paid in the US, (as opposed to its worldwide taxes on its worldwide profits), is only 3.4%.5 Thus, GE paid a far lower tax rate on its income than most Americans paid on theirs. In 2009, GE received a huge $140 billion bailout guarantee of its debt from Washington.6 By choosing GE’s chief executive, Jeffrey R. Immelt, to head his Economic Advisory Panel, President Obama effectively rewarded the corporate program: give us more and tax us less.
The Brookings Institute pie chart below summarizes the dramatic success achieved by corporations’ tax avoidance strategies.7
Corporations repeated at the state and local levels what they accomplished federally. According to the US Census Bureau, corporations paid taxes on their profits to states and localities totaling $24.7 billion in 1988 while individuals then paid income taxes of $90.0 billion.8 However, by 2009, while corporate tax payments had roughly doubled (to $49.1 billion), individual income taxes had more than tripled (to $290.0 billion).
If corporations paid taxes proportionate to the benefits they get from government and/or to what individuals pay, most US citizens would finally get the tax relief they so desperately seek.
2 For a detailed study of the changing burden of the US individual income tax on different income groups, see Thomas Piketty and Emmanuel Saez, “How Progressive is the U.S. Federal Tax System? A Historical and International Perspective,” Journal of Economic Perspectives, Vol. 21, No. 1 (Winter, 2007), pp. 3-24.
3 Scott D. Dyreng, Michelle Hanlon and Edward L. Maydew, “Long-run Corporate Tax Avoidance,” The Accounting Review, Vol. 83: 1, January 2007: 61-82). Electronic copy available at <ssrn.com/abstract=1017610>.
5 See “U.S. Corporations Are Paying Even Less in Taxes than Recently Reported,” Citizens for Tax Justice, 4 February 2011.
Richard D. Wolff is Professor Emeritus at the University of Massachusetts in Amherst and also a Visiting Professor at the Graduate Program in International Affairs of the New School University in New York. He is the author of New Departures in Marxian Theory (Routledge, 2006) among many other publications. Check out Richard D. Wolff’s documentary film on the current economic crisis, Capitalism Hits the Fan, at www.capitalismhitsthefan.com. Visit Wolff’s Web site at www.rdwolff.com, and order a copy of his new book Capitalism Hits the Fan: The Global Economic Meltdown and What to Do about It.
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