Corporate Taxes — Payers & Dodgers

picklePlease allow me to be very upfront — the arena I work in is serving as part time CFO to small businesses and it is my belief that economic growth that will ultimately lead us out of our recessionary doldrums will be driven by the SMB sector.

To be fair there are many facets of our current economic position that are intertwined and have contributed to our sloth-like recovery.

The Deficit is a big part of the problem — If you ran your business as our government you would long since have been out of business. None of us had to go to business school to figure that out — we already knew that we need to keep expense less than revenue to continue to move forward positively.

Confidence is another that plays a big part in our plight. There’s little lately. When people feel confident money flows — that spurs growth. Yet if your employees watched you spend money like a drunken sailor when they all knew the company was in financial trouble, would that promote their confidence? I think you may agree that answer is “no”.  Now you might suggest I’m contradicting myself — I suggest that answer is “no” as well. What is lacking is responsibility —  “responsible spending” that considers inflow of cash as well as outflow. Again, an MBA isn’t required to figure that out. What impact upon confidence do you think is promoted when the largest purchaser of goods and services on the planet casts a blind eye towards inflow vs. outflow?  Is that confidence building?  Is that responsible? Is that sound thinking? Then exacerbate small businesses that indicate complying with government regulations is their most important problem, greater than lack of credit and cash flow combined. It’s all about balance — balanced budgets … balanced regulation … balanced thinking.  Grad school is still not required to figure that out in my opinion.

There are a multitude of other reasons as you know, and …

That’s a bit of a long winded introduction to my point “Corporate Taxes — Payers and Dodgers“. The Citizens for Tax Justice that is purported to be nonpartisan, respected on Capitol Hill as “the average taxpayer’s voice” and ranked at the top of the Washington Monthly’s list of America’s “best public interest groups” and and the Institute on Taxation and Economic Policy have just released a study that addresses some of the “revenue concerns” of our aforementioned pickle. I encourage you to read and consider their largely plain English report in its entirety.

I’ve previously expressed my views on our need to overhaul our corporate tax code — eliminate loopholes. I thought I’d share just a few of the findings from the study of 280 Fortune 500 companies that appears to support the need for tax reform as well.

  • The good news is that 71 of the companies, 25 percent of the total, paid effective three-year tax rates of more than 30 percent. Their average effective tax rate was 32.3 percent.
  • The bad news is that an almost equal number of companies, 67, paid effective three-year tax rates of less than 10 percent. Their average effective tax rate was zero.
  • Even worse news is that 30 companies paid less than zero percent over the three years. Their effective tax rate averaged –6.7 percent.

The Dirty Two and a Half Dozen


Honestly, I do not fault these companies that take full advantage of the incentives that are afforded to them.


Yet how does this happen you may ask?

A few of the “popular” ways:

Offshore sheltering: Companies have become aggressive “shifting” their profits to offshore tax havens and avoid US tax obligation.

Industry-specific tax breaks: The federal tax code provides tax subsidies to certain industries.

Stock options: Many big corporations work their way around 1993 reform that was intended to limit the tax deduction (not compensation) for executives to $1 million/year/executive. When these options are exercised the company can then take a tax deduction for the difference between what the recipient pays for the stock and its market value.

Again ~ I don’t fault them ~ I do question the substance of some loopholes.

The report is worthwhile … I encourage you to read it.


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