Two out of every three United States corporations paid no federal income taxes from 1998 through 2005, according to a report released Tuesday by the Government Accountability Office, the investigative arm of Congress.
The study covers 1.3 million corporations of all sizes, most of them small, with a collective $2.5 trillion in sales. It includes foreign corporations that do business in the United States.
Among foreign corporations, a slightly higher percentage, 68 percent, did not pay taxes during the period covered — compared with 66 percent for United States corporations. Even with these numbers, corporate tax receipts have risen sharply as a percentage of federal revenue in recent years [Lynnley Browning, "Study Tallies Corporations Not Paying Income Tax," New York Times, 2008.08.12].
Two-thirds of corporations, foreign and domestic, are already the pleasure of avoiding corporate income tax. Saying "Move to South Dakota, pay no income tax!" is like saying, "Come to South Dakota, eat at Applebees!" It's just not a significant competitive advantage.
As an anti-plutocrat, I am at least pleased to see that bigger corporations are more likely than smaller ones to pick up some of the tab for the benefits of good government that supports their operations:
In 2005, one in four large United States corporations paid no taxes on revenue of $1.1 trillion, compared with 66 percent in the overall pool. Large corporations are those with at least $250 million in assets or annual sales of at least $50 million [Browning].
The Wall Street Journal rightly points out that some of these corporations, like American Airlines and General Motors, avoided corporate taxes through the "clever tax dodge" of losing money. Point well taken. If you don't make any money, you don't have a fair share to pay... or at least that's how it should work under a rational tax system, unlike South Dakota's property tax system.
WSJ also notes that U.S. corporate tax rates are actually the second highest in the world, behind only Japan, but we still take in less revenue:
The average European nation has tax rates on corporate income 10 percentage points lower than the U.S., but those countries on average raise 50% more as a share of GDP in corporate taxes than does the U.S., according to a 2007 study by the Treasury Department. Ireland with its 12.5% rate captures a higher share of its GDP (3.4%) in corporate taxes than the U.S. does (2.5%) with its 39.3% rate [editorial, "America the Uncompetitive," Wall Street Journal, 2008.08.15, p. A14].
Maybe South Dakota could stand to be a little more like Ireland: impose a simple, fair corporate income tax, boost revenues, and thus be able to provide corporations and actual human citizens better infrastructure and other services to support their daily activities.
Ireland, yes! Writers pay no taxes there at all. Or so I have heard. ;-)
ReplyDeleteThere was a proposal for a corporate income tax in South Dakota a year or two ago. It died in committee.
If we get a Democratic majority in both houses and a Democratic governor, we can, and likely will, get an income tax in some form ...
... something to remember every November.
Because if you've made money offering goods and services needed in the community, YOU ARE EEEEEVIIL.
ReplyDeletethey shouldn't pay taxes then trickle down economics works for all us poor peasants to live off of the scraps of the fat cats....
ReplyDeleteI don't get this. Why would a business owner have to pay an income tax as a corporation, then have to pay income taxes again when they take the money home as profit. If SD implemented a 10% corporate income tax, I would be effectively paying 33% in federal income taxes (not to mention the double hit on social security and medicare). Adding those in would bump me up to 47%.
ReplyDeleteHere's the better question. Why should someone who is creating wealth, actively working to improve their life financially, and help grow the US economy have to pay a higher tax rate than someone who simply works a job that a business-owner created?
I don't get it.
Ever heard of an S-corp?
ReplyDeletehttp://en.wikipedia.org/wiki/S_corporation
Those who benefit pay taxes, just not through the corporation.
WooHoo for small business.
This most likely covers little more than what Cory says in the 2nd half. Income tax only collects revenue if a company is both profitable and can't find non-taxable expenditures to re-invest it in. If we take that smaller pool of companies and subtract out the S-Corps it should surprise anyone that the number of companies paying income taxes is only 34%. Anyone who is manipulated into outrage from the GAO report is also failing to recognize the large chunk of revenue taken from companies through their employees individual SS and tax withholding. That is all revenue generated by the company that they never see any more that their workers do.
ReplyDeleteSales taxes are better than income or property anyway
Matt, don't you remember that corporations are legal persons separate from their owners? If we grant corporations the rights of personhood, should they not also have the responsibilities of personhood? Corporate personhood seems to dictate that corporations should pay taxes just like their owners do. You are not your corporation, thus no double dip.
ReplyDeleteOr at least that's what I'd argue if I believed corporate personhood was just.
CAH:
ReplyDeleteCorporations do not all follows the same rules. Some types pay income tax, but others pass along dollars to the corporation owners which are then taxed at that level.
A corporation is not necessarily a corporation. Most small businesses (the 2/3rds the article cites) don't pay income taxes directly but pass that burdon onto those who benefit from the corporation. The taxes are still collected. Just in a different fashion.
The article you site doesn't understand that there are different types with different rules.