CTJ Op-Ed Criticizes Senator Baucus’ Handling of Tax Reform

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Democratic Senator Max Baucus of Montana, chairman of the Senate Finance Committee which oversees tax legislation, announced today that he is retiring when his term closes at the end of 2014. Many people are asking how this will affect the tax reform that he hopes to shepherd through his committee. Last week, CTJ published an op-ed criticizing Baucus’s approach to tax reform.

Democratic and Republican tax-writers are holding bipartisan talks to craft a tax reform bill, even though there is no agreement between the parties on what the basic goals of such reform ought to be. One party recognizes a need for more revenue while another has pledged to not raise more revenue. This would be like holding bipartisan talks on immigration reform — if one party supported a path to citizenship while the other party pledged to round up all undocumented immigrants and deport them without exceptions…

A recent profile of Baucus’s efforts informs us that “Baucus declined say whether he views tax reform as a way to raise revenue, although he did not rule it out. Instead, he said, that divisive question should be left unanswered until committee members have a chance to study areas of reform where they are more likely to agree.”

Read the op-ed.

New from CTJ: Bernie Sanders Is Right and the Tax Foundation Is Wrong — The U.S. Has Very Low Corporate Income Taxes

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Read CTJ’s response to the Tax Foundation’s claim that the U.S. has a high corporate tax rate.

Senator Bernie Sanders of Vermont recently appeared on Real Time with Bill Maher and disputed the claim by the Tax Foundation that the U.S. has the highest corporate tax in the world. Senator Sanders is right, the Tax Foundation is wrong.

CTJ explains that the effective corporate tax rate (the share of profits that corporations pay in taxes) is what matters, and the effective tax rate for U.S. corporations is quite low. The Tax Foundation relies on flawed studies to argue otherwise. For example, one study cited by the Tax Foundation excludes corporations paying a negative tax rate — in other words, excludes corporate tax dodgers. Obviously this will result in a higher estimated effective tax rate.

Read CTJ’s full response.

Bernie Sanders Is Right and the Tax Foundation Is Wrong: The U.S. Has Very Low Corporate Income Taxes

April 23, 2013 02:19 PM | | Bookmark and Share

Read this report in PDF.

Senator Bernie Sanders of Vermont recently appeared on Real Time with Bill Maher and disputed the claim by the Tax Foundation that the U.S. has the highest corporate tax in the world.

During a debate over spending and revenues, Senator Sanders said it’s time to ask the “one out of four corporations not paying any taxes” to contribute. The Wall Street Journal’s Stephen Moore replied with the standard complaint, “We have the highest corporate tax rate in the world. … Thirty-five percent. The Tax Foundation says the United States of America has the highest corporate tax rate.”  Sanders replied that this is the “nominal, not effective” corporate tax rate.[1] The Tax Foundation then issued a written response claiming that even the effective corporate tax rate in the U.S. is very high compared to those of other countries. [2]

Senator Sanders is right, the Tax Foundation is wrong.

Effective Tax Rates vs. Nominal or Statutory Tax Rates

The U.S. statutory tax rate of 35 percent is almost entirely irrelevant. The effective corporate tax rate (what corporations actually pay as a percentage of their profits) is what matters, and it’s far lower than the statutory corporate tax rate because of the loopholes that allow corporations to avoid taxes. The U.S. effective corporate tax rate is also far lower than the Tax Foundation claimed in a written response to Senator Sanders.

While the statutory corporate income tax rate for the U.S. may be high compared to those of other countries, the total federal corporate income tax collected in the U.S. in 2010 was equal to just 1.3 percent of our gross domestic product  — in other words, 1.3 percent of our total economic output — according to the Treasury Department. The figure is 1.6 percent of GDP when state corporate income taxes are included.[3]

Data from the Organizations for Economic Cooperation and Development (OECD) show that the OECD countries other than the U.S. collected corporate tax revenue equal to 2.8 percent of their combined GDPs in 2010. This is another way of saying that the weighted average of corporate tax collected as a percentage of GDP for the countries that are the U.S.’s main trading partners and competitors was 2.8 percent in 2010. (2010 is the most recent year for which the OECD has complete data.)[4]

Some critics of corporate taxes claim that the declining share of the GDP paid in corporate income taxes collected in the U.S. reflects in part the growth in “pass-through” entities which are taxed only under the personal income tax and not under the corporate income tax. But almost all of the corporate income tax is paid by giant corporations, hardly any of which have shifted to pass-through status.[5]

In addition, effective corporate tax rates (on non-pass-through corporations) are very low in the United States, as CTJ has demonstrated in its comprehensive corporate tax reports.

One of the most cited of those reports was released in November of 2011 and examined most of the Fortune 500 companies that had been profitable each year over the 2008-10 period. Collectively, the companies studied paid just 18.5 percent of their profits in U.S. corporate income taxes over the three years that were studied — only half the 35 percent official corporate tax rate. Thirty of the companies paid less than nothing and had negative corporate income tax rates over that period.[6]

We are currently working on an update to this study, and recently released data showing ten examples of companies that paid negative or extremely low effective tax rates in 2012 and over the past five years.[7]

The Tax Foundation Relies on Flawed Research

In its written response to Senator Sanders, the Tax Foundation claims that

Even when including all deductions and credits available to companies to lower their tax liabilities, the “effective” tax rate of U.S. corporations is still among the very highest in the world. The most recent studies show a U.S. effective corporate tax rate of roughly 27 percent, compared to an average of 20 percent for other developed countries.

To back this assertion, the Tax Foundation cites its 2011 report that reviewed nine different studies of effective tax rates.[8] On close inspection of these studies, it turns out that six of them do not even examine the taxes and profits of actual firms but rather are based on models of taxation applied to hypothetical firms.

Only three of these studies are based on what the authors considered to be the actual taxes and profits paid by firms according to their financial reports. But these studies have several severe methodological problems that made it almost impossible for them to come to any conclusion other than that U.S. corporate taxes are high.

For example, one of the studies, by Kevin S. Markle and Douglas A. Shackelford of the National Bureau of Economic Research, actually states (on page 10) that it excludes those companies with a negative effective tax rate.[9] This essentially means that the study simply excludes those companies that are corporate tax dodgers, which obviously will result in a higher estimate for the average effective tax rate.

To take another example, a study by PricewaterhouseCoopers and the Business Roundtable counts what companies report in their financial filings as “deferred” taxes, as well as “current taxes” as taxes paid by a company.[10] As we have explained before, current taxes are the taxes a company actually pays during the year, while deferred taxes are the taxes that the company might pay at some point in the future (and if they ever are paid they will show up as current taxes in the financial report for that year).[11] In other words, “deferred” taxes are taxes that companies have not paid (and may never pay) and should not be counted as taxes paid.

Determining Actual Effective Corporate Tax Rates

Ultimately, the only way to understand how much corporations are actually paying in taxes is to do the painstaking work that CTJ does in going through the financial reports filed by corporations, and uncovering the hidden tax breaks that go unnoticed in the large, error-prone databases that these other studies tend to rely on.

For example, a simple reading of Facebook’s 2012 10-K annual financial report might suggest that the company pays a very large amount of federal income tax: the income tax note for the 2012 report says the company paid a current federal income tax of $559 million on its $1.062 billion in pretax US income. This implies an effective federal tax rate of 52.6%, which is a lot.

But in fact, the company reduced its federal income taxes by more than $1 billion in 2012 through the “excess stock option” tax break, the effects of which are not reported in the income tax note. Researchers using databases that simply report the contents of the income tax note will miss this essential piece of information.

The truth is that, by any measure, U.S. corporate income taxes are very low. And as a share of the economy, they are much lower than are corporate income taxes in almost every other developed country.


[1] Bud Meyers, “Bill Maher, Bernie Sanders, Makes Fool of Stephen Moore,” Daily Kos, April 12, 2013. http://www.dailykos.com/story/2013/04/12/1201358/-Bill-Maher-Bernie-Sanders-Makes-Fool-of-Stephen-Moore

[2] Richard Morrison, “Yes, Sen. Sanders, We Really Do Have the Highest Corporate Tax Rate in the World,” Tax Foundation, April 12, 2013. http://taxfoundation.org/article/yes-sen-sanders-we-really-do-have-highest-corporate-tax-rate-world

[3] In calendar 2010, the U.S. federal government collected $193.4 billion in corporate income taxes. (Monthly Treasury Statements for January 2010 to December 2010, http://www.fms.treas.gov/mts/backissues.html.)  In addition, state and local governments in the U.S. collected $42.9  billion in corporate income taxes in 2010 (U.S. Census Bureau, http://www2.census.gov/govs/estimate/summary_report.pdf. Table A-1 (page 6). So total federal, state and local corporate income taxes in the U.S. in 2010 were $236.3 billion. This is 1.6 percent of U.S. GDP in 2010, which was $14.5 trillion.

[4] OECD data is available at http://stats.oecd.org/ The OECD routinely far overestimates U.S. corporate taxes as a percentage of GDP, and we have corrected OECD’s error. For some reason, the OECD gets its U.S. corporate tax information from U.S. Bureau of Economic Analysis (BEA), which includes profits of the Federal Reserve as “corporate taxes.” Historically, this has caused OECD to overstate U.S. corporate income taxes by about 10 percent. But Federal Reserve profits have ballooned in recent years, causing OECD to overstate U.S. corporate income taxes by 23 percent in 2009 and 32 percent in 2010.  In addition, the OECD initially publishes preliminary data from the BEA, which includes corporate taxes paid by U.S. corporations to foreign governments (an error which OECD later corrects when BEA releases final data). Because of these two errors, OECD currently overstates U.S. federal, state and local corporate by almost two-thirds in 2010.

[5] The U.S. corporate income tax has always been paid by a relatively small number of companies that has not changed very much over time. IRS data show that in 1995, 6,258 companies (which had assets of at least $250 million that year) paid 78 percent of the corporate income tax collected during that year. In 2008, a similar number of companies, 6,584 companies (which had assets of at least $500 million that year) paid 82 percent of the corporate income tax collected during that year.

[6] Citizens for Tax Justice, “Corporate Taxpayers and Corporate Tax Dodgers: 2008-2010,” November 3, 2011. http://ctj.org/corporatetaxdodgers/

[7] Citizens for Tax Justice, “Ten (of Many) Reasons Why We Need Corporate Tax Reform,” April 10, 2013. http://ctj.org/ctjreports/2013/04/ten_of_many_reasons_why_we_need_corporate_tax_reform.php

[8] Philip Dittmer, “U.S. Corporations Suffer High Effective Tax Rates by International Standards,” Tax Foundation, September 2011. http://taxfoundation.org/sites/taxfoundation.org/files/docs/sr195.pdf

[9] Kevin S. Markle and Douglas A. Shackelford, “Cross-Country Comparisons of Corporate Income Taxes,” National Bureau of Economic Research Working Paper No. 16839, February 2011, http://www.nber.org/papers/w16839.pdf.

[10] “Global Effective Tax Rates,” PricewaterhouseCoopers and Business Roundtable, April 14, 2011, http://businessroundtable.org/studies-and-reports/global-effective-tax-rates/.

[11] Citizens for Tax Justice, “GE Tries to Change the Subject,” February 29, 2012. http://ctj.org/ctjreports/2012/02/ge_tries_to_change_the_subject.php

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The Corporate Tax Code Gives Away as Much as It Takes In

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A revealing new report from the Government Accountability Office (GAO) found that in 2011, the US government spent as much on corporate tax expenditures as it collected in corporate taxes. According to the report, 80 tax expenditures (exceptions, deductions, credits, preferential rates, etc.), cost the Treasury $181 billion in corporate tax revenue, which is the same as the total amount the Treasury collected in corporate taxes in 2011.

While the study looked at 80 corporate tax expenditures, over three-quarters of the revenue loses ($136 billion) were attributed to the four largest expenditures: accelerated depreciation, deferral of foreign income, the research credit, and the domestic production activities deduction. (CTJ has explained before that repealing these provisions would raise massive amounts of revenue.)

Making matters worse, 56 of the 80 tax expenditures that GAO looked at were used by individuals as well as corporations, resulting in an additional loss of $125 billion in revenue from the individual income tax. This happens because many corporate tax breaks can be used by businesses taxed under the individual income tax (the personal income tax), such as partnerships, S-corporations and other “pass-through” entities.

The report also revealed that more is spent on corporate tax expenditures in the budget areas of Commerce and Housing, International Affairs, and General Purpose Fiscal Assistance than is spent in direct federal outlays. For example, GAO found that the government spends only $45.7 billion in direct federal outlays for International Affairs, while spending $50.8 billion on corporate tax expenditures on this same budget function. Similarly, GAO concluded that one-third of the corporate only tax expenditures “appear to share a similar purpose with at least one federal spending program.”

These expenditures account for major U.S. corporations paying an average effective tax rate of half the 35 percent statutory rate, and often even zero in federal income taxes; elimination of these tax breaks should be the top priority for lawmakers looking to replace the sequester or reduce the deficit. In fact, a coalition of 515 groups recently called on Congress to repeal or reduce corporate tax expenditures as a way to raise revenue (as opposed to enacting corporate tax reform that is “revenue-neutral”). As Representative Lloyd Doggett (R-TX), who requested the GAO study, explained, “Corporate America did not contribute a nickel to the fiscal cliff deal that meant higher taxes for many Americans [and] it is reasonable to ask corporate America to contribute a little more toward closing the budget gap and to the cost of our national security.”

These corporate tax expenditures get nothing like the public scrutiny that direct spending is subject to. But tax expenditures for corporations are just like subsidies provided to corporations in the form of direct spending because Americans have to make up the costs somehow. That’s true whether it’s that bundle of earmark-like tax extenders that gets quietly renewed every year or two, or the rule allowing corporations to indefinitely defer taxes on foreign profits, or the massive breaks for depreciating equipment. All this is the spending of ordinary taxpayers’ dollars – and it merits the same critical attention.

Mid-Session Update on State Gas Tax Debates

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In a stark departure from the last few years, one of the most debated state tax policy issues in 2013 has been the gasoline tax (PDF).  Until this February, it had been almost three years since any state’s lawmakers approved an increase or reform of their gasoline tax.  That changed when Wyoming Governor Matt Mead signed into law a 10 cent gas tax hike passed by his state’s legislature.  Since then, Virginia has reformed its gas tax to grow over time alongside gas prices, and Maryland has both increased and reformed its gas tax.  By the time states’ 2013 legislative sessions come to a close, the list of states having improved their gas taxes is likely to be even longer.

Massachusetts appears to be the most likely candidate for gas tax reform.  Both the House and Senate have passed bills immediately raising the state gas tax by 3 cents per gallon, and reforming the tax so that its flat per-gallon amount keeps pace with inflation in the future (see chart here).  In late 2011, the Institute on Taxation and Economic Policy (ITEP) found that Massachusetts is among the states where inflation has been most damaging to the state transportation budget—costing some $451 million in revenue per year relative to where the gas tax stood in 1991 when it was last raised.  Governor Deval Patrick has expressed frustration that legislators passed plans lacking more revenue for education—in sharp contrast to his own plan to increase the income tax—but he has also signaled that there may be room for compromise.

Vermont lawmakers are also giving very serious consideration to gas tax reform.  At the Governor’s urging, the House passed a bill increasing the portion of Vermont’s gas tax that already grows alongside gas prices.  The bill also reforms the flat-rate portion of Vermont’s gas tax to grow with inflation.  The Senate is now debating the idea, and early reports indicate that the package may be tweaked to rely slightly more on diesel taxes in order to reduce the size of the increase on gasoline.

Pennsylvania Governor Tom Corbett has also proposed raising and reforming his state’s gasoline tax.  While Pennsylvania’s tax is technically supposed to grow alongside gas prices, an obsolete tax cap limits the rate from rising when gas prices exceed $1.25 per gallon.  Corbett would like to remove that cap in order to improve the sustainability of the state’s revenues, and members of his administration have been traveling the state to explain how doing so would benefit Pennsylvanians.  While the legislature has yet to act on his plan, the fact that it has the backing of the state’s Chamber of Business and Industry is likely to help its chances.

In New Hampshire, the Governor has said she is open to raising the state gas tax and the House has passed a bill doing exactly that.  But there are indications that lawmakers in the state Senate might continue procrastinating on raising the tax, as the state has done for over two decades.

Nevada lawmakers are discussing a gas tax increase following the release of a report showing that the state’s outdated transportation system is costing drivers $1,500 per year.  ITEP analyzed a gas tax proposal receiving consideration in the Nevada House and found that even with the increase, the state’s gas tax rate (adjusted for inflation) would still remain low relative to its levels in years past.

Iowa lawmakers have been debating a gas tax increase for a number of years, and there may be enough support in the legislature to finally see one enacted into law.  The major stumbling block is that Governor Branstad will only agree to raise the gas tax if it’s part of a larger package that cuts revenue overall—particularly revenues from the property tax.  As we’ve explained in the past, such a move would effectively benefit the state’s roads at the expense of its schools.

Earlier this year, Washington State House lawmakers unveiled a plan raising the state’s gas tax by 10 cents per gallon and increasing vehicle registration fees.  Senate leaders are reportedly less excited about the idea of a gasoline tax hike, though there are indications they would consider such an increase if it were to pass the House.  While talk of a 10 cent increase has since quieted down, there are rumors that a smaller increase could be enacted.

Unfortunately, some states where the chances of gas tax reform once appeared promising have since begun to move away from the idea.  In Michigan, while the Governor and the state Chamber of Commerce have voiced strong support for generating additional revenue through the gas tax, neither the House nor the Senate appears likely to vote in favor of such a reform this year.  Meanwhile, the chances for a gas tax increase in Minnesota seem to have faded after the Governor came out against an increase and the House subsequently unveiled a tax plan that leaves the gas tax untouched.

Overall, 2013 has already been a significant year for state gas tax reform.  Both Maryland and Virginia have abandoned their unsustainable flat gas taxes in favor of a better gas tax that grows over time, just like construction costs inevitably will.  Hopefully, within the next few months, more states will have followed their lead.

Louisiana Tax Overhaul Collapse as Bellwether? We Can Only Hope.

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Last week we brought you news that Louisiana Governor Bobby Jindal was abandoning his plan to eliminate the state personal and corporate income taxes and replace the revenue with an expanded sales tax. Instead, the Governor asked the legislature to “Send me a plan to get rid of our state income tax.” But now the legislature is denying the Governor’s request.

House Ways and Means Committee Chair Representative Robideaux has asked his colleagues to “defer” the bills they already had in the works to repeal the state income tax, and he’s said that he won’t allow hearings on any income tax repeal bill, closing the door on any attempt to eliminate the state’s income tax. Robideaux said, “I think it’s probably dead for the session, right now, there’s probably income tax fatigue.”  Importantly, he also asks, “Is there a constituent base out there demanding repeal of the income tax?” The answer is that two thirds of Louisianans actually opposed the Governor’s plan for this tax swap, which happens to be about the same percentage of Louisianans who stand to lose the most if any such tax plan gets implemented.

Jindal’s failure is a victory for tax justice advocates and a may serve as a lesson for lawmakers in other states entertaining similarly radical tax ideas.

The St. Louis Post Dispatch, for instance, editorialized, “Louisiana’s lawmakers realize what Missouri’s don’t: Income tax cuts are suicidal.” Missouri lawmakers are debating their own draconian tax plan that would roll back income taxes. The Post Dispatch continues, “What Louisiana has recognized is that the supposed benefits of cutting state income taxes are vastly overstated. The impact of service cuts is vastly understated. The effect is that rich people and corporations get richer. Everyone else gets poorer.”  

In another state, Georgia, income tax elimination has been debated for years, but this columnist with the Atlanta Journal Constitution is hopeful that the tax justice victory in Louisiana will lead to Georgia lawmakers reconsidering their own proposal, which eliminates the personal and corporate income tax for no good reason.

Tax plans similar to Jindal’s have hit road blocks in Nebraska and Ohio this year. Among the many reasons these plans fail, it seems, is that when people realize that they amount to unwarranted tax cuts for the rich that raise taxes for everyone else and probably bust the budget, too, common sense prevails and these ideas are defeated. 

We know that Louisianans dodged a bullet when the Governor’s plan fell apart.  And while it’s good news that a big reason was widespread concern over its fundamental unfairness, the fact is Bobby Jindal is not the only supply-sider committed to eliminating the income tax. So we savor the victory, yes, but also prepare for the next battle as similar plans are winding their ways through other state capitals.

Indiana Senate’s Income Tax Cut Smaller But No Fairer Than Governor’s

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The Indiana Senate recently passed a budget that speeds up the phase-out of the state’s inheritance tax (PDF), cuts taxes for the politically well-connected financial industry, and reduces the state’s flat personal income tax rate from 3.4 to 3.3 percent.  

The income tax cut in the plan, though a scaled-back version of a plan that Governor Pence originally proposed on the campaign trail, is similarly regressive. A new report from our partner organization, the Institute on Taxation and Economic Policy (ITEP), shows that while the Senate income tax cut is significantly smaller than the Governor’s, the two plans are equally lopsided—distributing the lion’s share of the benefits to the state’s most affluent residents.

ITEP finds that over half (55 percent) of the income tax cuts under either plan would go to the best-off 20 percent of Indiana residents. Out of this group, the top 1 percent would fare best of all—receiving an outsized 14 percent share of the benefits.  Their average tax cut would range from $694 under the Senate’s plan to $2,361 per tax filer under the Governor’s preferred approach.

Middle- and lower-income taxpayers would not fare nearly as well. The entire bottom 60 percent of households would be divvying up just 23 percent of the tax cuts enacted under either plan, while the poorest 20 percent of Indiana residents in particular would see a tiny 2 percent share.  Under the Senate plan, this group would see an average tax cut of just $6, while the $20 cut they’d see under the Governor’s proposal is only marginally more generous.

This lopsided tax cut comes on top of a state tax system that is already, according to ITEP’s ranking, the ninth most regressive in the country.

But even putting fairness considerations aside, a recent letter from House Speaker Brian Bosma referenced by ITEP points out that Indiana’s last round of tax cuts wrecked the state’s budget. Even with late news of a boost in revenue projections, Indiana lawmakers would be wise to avoid a repeat of that fiscal history for the sake of tax giveaways that serve no greater economic good.

For more detail, see ITEP’s new report: Indiana Senate’s Income Tax Cut: Just as Lopsided as the Governor’s.

State News Quick Hits: Promoting Tax Justice in the States on April 15

On April 15, the majority of Americans file their income taxes, federal and state. As CTJ and ITEP demonstrate in their annual Who Pays Taxes in America, state tax systems are overwhelmingly regressive and the federal system just barely makes up for that. Today we highlight some great, creative efforts in a few states promoting the importance of state tax fairness.

Michigan: The Michigan League for Public Policy organized a social media campaign and video called “Pay it Forward Michigan.” The League explains that “its aim is to remind us about the good things our tax dollars create or protect — clean water, parks, good schools, safe streets, good roads, protection for children, great universities, the arts, bike paths, pristine beaches and more.”

North Carolina: Russell the Public Investment Hound was back and starring in a new film, The Great Tax Shift.  Also, check out this tax day Fair Fight Luchadora (Mexican wrestling) showdown that was staged across the street from the North Carolina General Assembly building. From the press advisory: “Tax Day is a reminder that wealthy and powerful special interests aren’t made to pay their fair share because too few lawmakers in Raleigh and in D.C. care about being champions of the People who elected them. This year, working people will get to settle the score!” Spoiler alert: the people’s champ won!

Ohio: Amy Hanauer of Policy Matters Ohio writes in the Cleveland Plain-Dealer about why income tax cuts won’t help the state’s economy, and highlights research from ITEP to make her case.  She also shares a personal experience with a fire in the basement of her home just days before Tax Day in 2001. “The firefighters arrived in minutes and put out the still-tiny fire … and I suddenly had a more vivid picture of what my un-mailed taxes would pay for. Twelve years later, I can thank countless teachers, crossing guards, snowplow drivers, police officers, water inspectors and others for helping keep my kids educated, protected, safe and happy in our community.”

Wisconsin: Ever wonder what Wisconsin income taxes help fund? Read all about it here and check out the gorgeous infographic showing how tax revenues are an economic investment.

Photo courtesy of FairFight North Carolina.

Six Things You Need to Know on Tax Day

April 15, 2013 10:09 AM | | Bookmark and Share

Read the Single Page PDF.

1. Virtually all Americans, including the poorest Americans, pay taxes.

■ When someone says almost half of Americans are not paying taxes, that refers to just one tax, the federal personal income tax, and ignores the many other taxes Americans at all income levels pay.

■ Overall, state and local taxes actually take a larger share of income from a poor family than they take from a higher-income family.

2. America is NOT overtaxed.

■ Of the world’s developed countries, only two (Chile and Mexico) collect less tax revenue as a share of their economy than does the U.S.

■ The countries collecting more in taxes, as a share of their economy, than the U.S. include our trade partners and competitors, like France, Germany, the United Kingdom, Canada, South Korea and others.

3. Wealthy Americans are NOT overtaxed.

■ When you add up all the different federal, state and local taxes that Americans pay, you find that our overall tax system is just barely progressive.

■ The richest one percent of Americans pay 24.0 percent of the total taxes in America, but they also take in 21.9 percent of the total income in America.

4. U.S. corporations are Undertaxed.

■ CTJ’s study of 280 profitable Fortune 500 corporations found that they on average only paid about half the official corporate tax rate of 35 percent during 2008 through 2010.

■ Many large profitable companies, including Facebook, Pepco, Southwest Airlines and others, paid nothing in corporate income taxes during 2012.

5. Tax cuts for the rich do not help our economy.

■ Using data from the past 65 years, the Congressional Research Service has found that there is no correlation between top tax rates and economic growth.
■ This conclusion holds true at the state level, where research from ITEP and academic economists has shown lowering or eliminating state income taxes to have little if any impact on state economies.

6. Your Tax Bracket is Not Your Effective Tax Rate

■ If your income grows and you find yourself “in” a higher tax bracket, your tax rate does not go up on all of your income, it only goes on the portion of you income above the specific income threshold. 

■ Over 99.9% (PDF) of taxpayers pay an effective federal income tax rate of less than 30 percent, well below the top marginal tax rate.

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How We Do Our Corporate Tax Research

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Citizens for Tax Justice has been publishing studies of what major U.S. corporations pay in federal income taxes for years. Not just the effective tax rate, but also what they actually pay in federal (and state) taxes on their profits each year. From time to time, however, we hear the critique that there is no way to figure out what corporations actually pay in federal income taxes, based on corporate 10-K annual reports that we use.
Most recently, in the Washington Post of April 12, 2013, Allan Sloan levels this mistaken charge. According to Sloan:

 “There are more than a dozen tax metrics disclosed in a 10-K — but not the federal income tax incurred for a given year. . . . The stories you read about disgracefully low corporate taxes are based on the “current portion” of taxes due, disclosed in 10-K footnotes. Many people —­ including me, years ago, before I learned better — use that number as a proxy for the federal income tax that a company pays. But that’s a mistake. . . . The current-portion number . . . has no connection whatsoever with what a company actually forks over to the IRS for a given year.”

As we pointed out in our November 2011 study, Corporate Taxpayers & Corporate Tax Dodgers 2008-10, the “current” federal income taxes that corporations disclose in their annual reports, adjusted for stock-option tax benefits that are reported separately, are the best (and only) measure of what corporations really pay (or don’t pay) in federal income taxes.

To read our full explanation of why this is true, click here.

We wholeheartedly endorse the call, made by Sloan and others, for more transparent disclosure of tax information in corporate annual reports. But the disclosure we already get, if one knows how to understand it, is quite fine. The journalists, lawmakers, policy advocates and the general public who rely on our research can be confident in our findings about corporate taxes.