President Barack Obama listens as he is introduced by W. James McNerney Jr., chief executive of Boeing, during a Business Roundtable meeting in Washington, D.C., last week. Obama told top business executives the global economy remains "soft" and the deadlock in Washington over taxes and spending is holding the U.S. back from leading a strong recovery.
By DAVE MICHAELS
Published: 13 December 2012 11:06 PM
WASHINGTON — In the fight over who pays to avoid the fiscal cliff, big business has so far avoided any sacrifice.
Small business groups were angry this week when 160 chief executives of large public companies, members of the Business Roundtable, broke ranks on taxes and announced that more tax revenue would be needed to reduce the federal government’s $16 trillion debt.
The Roundtable CEOs supported raising money from higher individual income tax rates — which apply to some small business owners — but said corporate tax rates should be lowered through reform that also simplifies the code.
“The Business Roundtable is a first-rate business organization, but through that letter they’ve traded the perception that they are willing to sacrifice small businesses with higher tax rates while avoiding any sacrifices themselves,” said Rep. Kevin Brady, R-The Woodlands.
Large corporations have pushed for years to reduce their statutory tax rate, which at 35 percent is the highest in the world. But large companies often pay less because of federal tax breaks and tax-avoidance strategies. The average corporate tax rate fell last year to 12.1 percent, the lowest in 30 years, according to the Congressional Budget Office.
Among North Texas’ 150 largest public corporations, Irving-based Exxon Mobil paid one of the highest effective tax rates last year — 41 percent — according to data compiled by New York University finance professor Aswath Damodaran. Dallas-based Tenet Healthcare Corp. paid one of the lowest among local public companies — 3 percent.
President Barack Obama offered this week to accelerate corporate tax reform next year if Republicans sign on to higher rates on wealthy individuals as part of a deal to resolve the fiscal cliff. Obama has previously proposed reducing the corporate rate to 28 percent while eliminating many business tax breaks.
House Republicans want to lower the rate to 25 percent and would eliminate U.S. taxes on a domestic company’s foreign earnings. (U.S. companies now pay taxes on foreign profits when they bring the money home.) The GOP has said corporate tax reform should be revenue-neutral, meaning it doesn’t add to deficits but doesn’t help reduce them, either.
The Business Roundtable argues that this model of tax reform would help boost economic growth.
“Getting the rate down … and evisceration of a lot of deductions that we enjoy produces a lot more clarity and certainty and therefore sure-footed investment than does the situation we have now,” said W. James McNerney Jr., chairman of the Business Roundtable and chief executive of Boeing Co.
Some Democrats and liberal groups say corporations should be asked to pay more to help stabilize the nation’s finances. The share of federal revenue raised by the corporate tax has been falling for several decades as more businesses chose to organize as pass-through entities — which pay individual income tax rates — and new tax breaks ate away at the tax base.
Unlike small employers, the largest public corporations have sophisticated tax departments that work to minimize the amount of tax they pay. Bloomberg News reported this week that Google avoided about $2 billion in worldwide taxes last year by shifting income to the tax haven of Bermuda.
Adjusted for the size of the economy, U.S. corporations actually pay a lower effective tax rate than corporations in other advanced nations, according to the Congressional Research Service. The U.S. “weighted” effective tax rate for corporations is 27.1 percent, compared with the average of 27.7 percent in other countries, it said in a September report.
Steve Wamhoff, legislative director at Citizens for Tax Justice, said raising more money from corporations will become appealing as Congress weighs cuts to popular entitlement programs such as Medicare and Social Security.
Wamhoff’s group has identified 26 U.S. corporations, including Tenet and Dallas-based Atmos Energy, that paid negative effective tax rates between 2008 and 2011. The group calculates effective tax rates using the amount of taxes that were actually paid by a corporation.
“When lawmakers are really faced with these hard decisions — ‘Should we cut Medicare more? Or should we get more revenue from corporations?’ — getting revenue from corporations is going to start looking really good,” Wamhoff said.
A Tenet spokesman said the company has reduced its tax bill in recent years by applying losses from past years to offset profits in more recent years. The deduction is known as “net loss carryforward” and is permitted under federal law.
“Today, Tenet’s effective tax rate is approximately 39 percent,” Tenet spokesman Rick Black said. “Beyond federal corporate taxes, every year we also pay significant state, county, real estate and payroll taxes.”
Some economists who support corporate tax reform say it would be a mistake to try to raise more money from U.S. corporations, which compete globally for customers with foreign firms that face lower statutory rates.
The corporate tax, they say, distorts saving and investment decisions because it taxes corporate income twice — first, on a corporation’s profits; and second, when those after-tax profits are distributed as dividends. Businesses organized as pass-through entities don’t face double taxation.
“We do not, in fact, want to turn to inefficient, distortionary tax systems to raise additional revenue,” Alan Viard, an economist at the conservative American Enterprise Institute, said this week at conference on corporate tax reform.
“And the corporate income tax certainly fits that to a T.”
The Dallas Morning News: Corporations avoiding pain in fiscal cliff debate