August 8, 2012
After his company reported the largest quarterly earnings in its history, the head of the Walt Disney Co. said he thinks the United States should cut its corporate income tax rate.
“We pay a very high corporate tax rate as a company,” Disney President and Chief Executive Officer Bob Iger said in an interview with Fox Business Network scheduled to air at 1 p.m. today. “We know that America is very high, among the highest in the world, if not the highest in terms of corporate tax rates. That’s something that I believe has to change. We’ve got to become more competitive.”
For its 2011 fiscal year, Disney reported a federal income tax bill of nearly $1.9 billion on U.S. profits of more than $7.3 billion – which works out to an effective tax rate of 25.3 percent. And in the three-year period between 2008 and 2010, the company paid federal income taxes at a rate of 27.3 percent, according to a study last year by the liberal-leaning Citizens for Tax Justice, which examined filings for 280 large, publicly traded companies.
The company’s tax rate is below the federal statutory rate of 35 percent, as Disney has been able to use a variety of breaks and deductions — such as a tax credit for domestic production activities, like manufacturing theme-park attractions — to lower its bill.
But it is also higher than the tax rate paid by many other large companies in the U.S., who employ more aggressive tax-planning strategies or have access to an even wider array of breaks. The combined federal tax rate for the 280 companies examined by Citizens for Tax Justice was just 18.3 percent.
Some of Disney’s competitors pay even less. For instance, the Orlando Sentinel reported in April that theme-park owner SeaWorld Parks & Entertainment wouldn’t pay any federal or state corporate income tax for 2011 despite producing record earnings, thanks to big deductions on corporate debt and equipment depreciation.
“We’re not looking for corporations to get off lightly,” Iger said. “We’re looking for corporations to be taxed fairly. There are a number of corporations that do get off lightly because they take advantage of loopholes that we believe should be closed.”
Iger did not identify any specific breaks that he would like to see eliminated nor did he say what he thinks a new overall tax rate should be. President Barack Obama earlier this year proposed lowering the corporate rate to 28 percent while eliminating dozens of different breaks and narrowing some big ones – such as the deduction for interest on debt payments.
Disney does take advantage of a number of tax breaks. The company has claimed $557 million worth of tax credits — including $183 million last year — under the domestic-production break, which was initially passed in 2004 as part of the “American Jobs Creation Act.”
The company is also indefinitely holding approximately $340 million worth of profits offshore, saving itself about $30 million in U.S. income taxes. And it maintains a web of subsidiaries in low-tax jurisdictions, including two dozen major subsidiaries in Delaware alone.
In Florida, Disney shaves millions of dollars a year off of its sales and hotel tax bills by having Walt Disney World sell theme-park tickets, hotel rooms and meal vouchers to another company subsidiary before then peddling them to travelers as vacation packages.
Disney and NASCAR racetrack owner International Speedway Corp. also lobbied Florida lawmakers this spring for a multimillion-dollar package of tax breaks for sports facilities such as Disney World’s ESPN Wide World of Sports Complex, though that legislation failed to pass.
Still, Iger suggested he would support a tax plan that paired an overall rate cut with enough loophole eliminations to ensure the total revenue generated by the corporate income tax remains the same.
“So what we’re basically saying is not necessarily lower corporate taxes overall, but change the system so that the basic blended number is lower,” he said.