Most Firms Paid No Taxes to US

A new study by the Government Accountability Office came out yesterday that said about 2/3 of corporations operating in the US paid no taxes from 1998 to 2005. In 2005, these firms made collective sales of $2.5 trillion. A great many of these were American startups that wouldn’t pay due to lack of profits. However, in that time period, 68% of foreign controlled firms paid nothing, and none of them could count as startups.

Senator Byron L. Dorgan (D-ND) called the report “a shocking indictment of the current tax system.” He added, “It’s shameful that so many corporations make big profits and pay nothing to support our country. The tax system that allows this wholesale tax avoidance is an embarrassment and unfair to hardworking Americans who pay their fair share of taxes. We need to plug these tax loopholes and put these corporations back on the tax rolls.”

Corporations, of course, pay taxes on profits, and if there are no profits, there are no taxes. Moreover, corporations are allowed to carry forward losses to reduce future tax bills. This practice is perfectly reasonable as it allows for multi-year strategies and planning, and it encourages capital expenditure and development of businesses. It is important to note that the GAO didn’t analyze whether the corporations in question had profits or not.

A dicey issue is “transfer pricing” whereby multinationals shift assets and income around to be realized in the lowest-tax jurisdiction. As with profits, the GAO didn’t investigate whether corporations were using that practice to reduce US tax liability, but they would be foolish if they didn’t. Carl M. Levin (D-MI) didn’t bother with the facts when he said, “This report makes clear that too many corporations are using tax trickery to send their profits overseas and avoid paying their fair share in the United States.”

There is circumstantial evidence that there is something very wrong. What if 2/3 of individuals paid no taxes for eight fiscal years? The GAO report is but a beginning. The senators really ought to follow up with hearings.

© Copyright 2008 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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