Leveling the playing field
By Lou Dobbs
CNN
(CNN) -- We hardly need more evidence of the unparalleled political power of Corporate America. But while Congress recently approved billions more in corporate tax cuts, a new report showed that the United States' biggest and most profitable companies have been paying less in federal income taxes over the past three years despite reporting higher profits. And many of them are paying no taxes at all.
Rich corporate tax breaks and loopholes are not only making it easier for large U.S. multinationals to shelter their profits earned from operations in this country, but they're also putting pressure on smaller American companies to cut costs just to compete. And that has led to an increase in the number of jobs we've mindlessly outsourced to cheap foreign labor markets. Closing these loopholes may not be the sole solution to outsourcing, but it would serve the dual purpose of making sure all American companies compete on a truly level playing field and restraining our already unsustainable record twin deficits.
A new study conducted by Citizens for Tax Justice found that the average effective tax rate for the largest 275 American corporations dropped by a fifth over the past three years, from 21.4 percent in 2001 to 17.2 percent in 2003. The 275 companies reported pretax profits from U.S. operations of almost $1.1 trillion in that three-year period, yet they reported and paid taxes on only $557 billion. That rate is about half of the statutory 35 percent corporate tax rate that companies are obligated to pay to the government.
Some corporations are paying no federal income taxes at all, and others are actually making more money after taxes, mostly due to tax havens and additional breaks from the Bush administration in recent years. Twenty-eight of the 275 companies surveyed paid no tax at all from 2001 to 2003, despite having profits in the period of nearly $45 billion. More than 80 paid no income tax in at least one of the past three years, and last year, 46 of the 275 companies surveyed paid no federal income tax.
The report echoes recent Commerce Department data, which showed corporate tax payments fell 21 percent from 2001 to 2003. During that same period, though, the Commerce Department reported that pretax corporate profits rose 26 percent. U.S. multinationals are earning higher profits, but they're also finding more ways to protect that money from flowing back into our country.
Martin A. Sullivan, contributing editor for Tax Notes and former Treasury Department economist, blames the corporate tax problem on the laws rather than the U.S. multinationals themselves.
"I think Congress and the administration have dropped the ball on enforcing and strengthening the laws," Sullivan said. "It's not just the corporations on their own doing this, and they're not doing anything illegal. They're doing everything within the law, but they have a lot of leeway within the law right now."
Not only is the government weakening the laws to aid these corporations, but they're also handing out more than just tax breaks. The federal government has awarded billions in government contracts to companies that shelter their profits or set up headquarters in offshore tax havens. More than half of the top 100 contractors doing business with the government also have subsidiaries in tax-haven countries. That may explain why these corporations now pay only about 6 percent of federal revenue, the lowest level since World War II.
Both political parties in Congress should be doing more to prevent these contracts from going to these U.S. multinationals. After Accenture was awarded a $10 billion Homeland Security Department contract in June, the department's largest contract ever, new legislation was proposed to prevent these corporations from bidding on Homeland Security contracts. That's a good first step, but all government contracts should favor companies that do business here, employ our country's working men and women and pay taxes here as well.
Hard-working men and women are certainly paying their share. It's time for our business leaders to make sure they do their part as well.
