The Sorry State of Corporate Taxes: What Fortune 500 firms pay (or don’t pay) in the USA and what they pay abroad

- February 25, 2014
   

Two Ohio companies — American Electric Power and FirstEnergy — were among the 26 major companies that in the aggregate paid no federal income tax over the five-year period between 2008 and 2012. Most companies included in this new study aren’t paying anywhere near the statutory 35 percent tax rate.

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or Jenice Robinson, 202.277.8750
Download full report (88 pp)

 

Many of America’s most profitable corporations pay little or no federal income taxes; Multinationals pay higher rates abroad than in the U.S.

Washington, D.C. – A comprehensive five-year study of 288 highly profitable Fortune 500 companies finds that 111 of them paid no federal corporate income tax in at least one of the last five years while one-third paid a U.S. tax rate less than 10 percent over the same period, including 26 that paid nothing at all, Citizens for Tax Justice and the Institute on Taxation and Economic Policy said today.

Contrary to the myth spread by corporate lobbyists, most multinational corporations in the study (The Sorry State of Corporate Taxes: What Fortune 500 Firms Pay (or Don’t Pay) in the USA and What They Pay Abroad — 2008–2012) paid lower U.S. taxes on their U.S. profits than they paid to foreign governments on their foreign profits.

“Corporate lobbyists incessantly claim that our corporate tax rate is too high, and that it’s not ‘competitive’ with the rest of the world,” said Robert McIntyre, Director of Citizens for Tax Justice and the report’s lead author. “Our new report shows that both of these claims are false. Most of the biggest companies aren’t paying anywhere near 35 percent of their profits in taxes and far too many aren’t paying U.S. taxes at all. Most multinationals are paying lower tax rates here in the United States than they pay on their foreign operations.”

The study examines five years’ worth of data on federal income taxes paid by 288 corporations–every Fortune 500 company that was profitable each year of the study and provided sufficient, reliable information in their financial reports to allow calculation of their effective U.S. and foreign tax rates. Although the statutory corporate federal tax income tax rate is 35 percent, these corporations paid an average effective rate of just 19.4 percent over the past five years, barely more than half the official rate.

Among the report’s other findings:

  • 111 of the companies enjoyed at least one year in which their federal income tax was zero or less.
  • 26 companies, including Boeing, General Electric, Priceline.com and Verizon, enjoyed negative income tax rates over the entire five-year period, despite combined pre-tax profits of $170 billion.
  • Of the 125 multinational companies in this sample, two-thirds paid a lower U.S. tax rate than the rate they paid to foreign governments on their foreign profits. On average, their foreign effective tax rate was 12 percent larger than their U.S. effective rate.
  • The total amount of federal income tax subsidies enjoyed by the 288 profitable corporations over the five years was $362 billion.
  • Wells Fargo tops the list of corporations receiving the most in tax subsidies, getting more than $21 billion in tax breaks from the U.S. treasury from 2008 through 2012.
  • Pepco Holdings had the lowest effective tax rate of all the companies in the study, at negative 33 percent over the five year period.
  • Industry tax rates varied widely, from a low of 2.9 percent for utilities to a high of 29.6 percent for healthcare companies.
  • Some companies within sectors fare worse than others. For example Time Warner Cable paid 3.9 percent over five years, while its competitor Comcast paid 24 percent.  
  • More than half of the federal corporate tax subsidies received by the companies in the study went to four industries: financial services, utilities, telecommunications, and oil, gas & pipelines.

“It’s a sorry situation when most Americans can rightly say, ‘I pay more in federal income taxes than General Electric, Boeing, Verizon, Pepco, Priceline, Duke Energy and 20 other big corporations, all put together!’ McIntyre said. “Right now, this nation faces important questions of how to fund pressing priorities, from education, health care, infrastructure to retirement security, that benefit most Americans. But too often, our lawmakers ignore the need to ensure we have a just tax system that raises the revenues we need.”

The report outlines a set of sensible reform options that could help revitalize the corporate tax, including ending the indefinite deferral of taxes in foreign profits and tax breaks for executive stock options.

The Sorry State of Corporate Taxes is the latest in a series of comprehensive publications on corporate taxes from Citizens for Tax Justice (CTJ) and the Institute on Taxation and Economic Policy (ITEP). The two groups released their first major study on the federal income taxes that large, profitable American corporations pay, or fail to pay, in 1984, when it helped lead to the loophole-closing Tax Reform Act of 1986. The newest study, released today, is online at www.ctj.org/corporatetaxdodgers.

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Citizens for Tax Justice (CTJ), founded in 1979, is a 501(c)(4) public interest research and advocacy organization focusing on federal, state and local tax policies and their impact upon our nation (www.ctj.org).

Founded in 1980, the Institute on Taxation and Economic Policy (ITEP) is a 501(c)(3) non-profit, non-partisan research organization, based in Washington, DC, that focuses on federal and state tax policy. ITEP’s mission is to inform policymakers and the public of the effects of current and proposed tax policies on tax fairness, government budgets, and sound economic policy (www.itep.org).

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