Companies' Tax 'Subsidies' Targeted

GE, Boeing, others cited as group lobbies for overhaul that generates revenue.

Eleven U.S. corporations including General Electric Co., Boeing Co. and Wells Fargo & Co. together reported $62 billion in domestic profits in 2010 while paying a negative 3.6 percent federal tax rate, according to data released today by Citizens for Tax Justice.

The Washington-based interest group, which is backed by labor unions, hopes the data will help persuade President Barack Obama to abandon his efforts to rewrite the corporate tax code without collecting additional revenue. The organization said the figures make the case for using a corporate tax overhaul to generate more revenue.

“Our elected officials have a duty to the American public to make reducing or eliminating the vast array of corporate tax subsidies the centerpiece of any deficit-reduction strategy,” Bob McIntyre, the director of Citizens for Tax Justice, said in a press release accompanying the report.

Included in the report is General Electric, whose chief executive, Jeffrey Immelt, serves on Obama’s Council on Jobs and Competitiveness. Citizens for Tax Justice said the Fairfield, Connecticut-based company’s effective tax rate during 2010 was a negative 64 percent on $5.1 billion in U.S. profits.

“GE is fully compliant with all tax laws,” company spokesman Andrew Williams said in an e-mailed statement. “There are no exceptions.”

‘Small’ Liability Anticipated

GE plans to file its 2010 federal tax return by September and anticipates that it will have a “small” tax liability, Williams said in the statement.

Many factors can contribute to high domestic profits and low federal tax rates for U.S. companies, such as the results of audits of previous years’ returns and the effects of losses. Also, companies can take deductions for domestic expenses related to income they earn overseas. The U.S. doesn’t tax overseas profits until they are brought home.

Short-term incentives for accelerated depreciation, which Congress enacted in 2008, 2009 and 2010, cause companies to report lower current tax expenses, said Martin A. Sullivan, a contributing editor at Tax Analysts, a nonprofit organization in Falls Church, Virginia. Such companies will pay more taxes in the future when they are unable to take depreciation deductions they would otherwise receive.

In general, Sullivan said, the current tax expense listed on the 10-K forms filed with the Securities and Exchange Commission indicates general information that illuminates a company’s tax situation without showing actual payments.

Tax Payments Private

“There is no way in the world you can find out how much tax a corporation pays to the IRS from eyeballing its 10-Ks, and believe me, I’ve tried,” he said.

Sullivan said the group’s decision to focus only on domestic profits ignores a trend that would make companies’ tax payments appear even smaller. Many companies have used transfer pricing, or movement of intangible assets within a company, to shift profits outside the U.S. to low-tax countries.

Besides GE, Boeing and Wells Fargo, Citizens for Tax Justice included in the data Exxon Mobil Corp., American Electric Power Company Inc., E.I. du Pont de Nemours & Co., Verizon Communications Inc., FedEx Corp., Honeywell International Inc., IBM, Yahoo! Inc., and United Technologies Corp. Information from FedEx was for 2008 and 2009 only; the company’s 2010 fiscal year ended yesterday and was not included in the study’s 2010 calculation.

Together, the 12 companies earned $171 billion in U.S. income between 2008 and 2010 while paying an effective federal tax rate of a negative 1.5 percent in that period.

‘It’s Not Them’

Representative Richard Neal, a Massachusetts Democrat and senior member of the House Ways and Means Committee, said the current tax code is responsible for the low tax rates paid by the corporations.

The companies “hired good tax attorneys and accountants,” he said in a brief interview. “It’s the code. It’s not them.”

Similar data released by Citizens for Tax Justice more than 20 years ago helped spur the 1986 tax overhaul, the last major rewrite of the U.S. tax code.

The top tax rate for U.S. corporations is 35 percent. House Ways and Means Committee Chairman Dave Camp, a Michigan Republican, has proposed lowering that rate to 25 percent without providing details. The committee plans to hold a hearing tomorrow exploring the macroeconomic effects of a tax overhaul on companies. Executives from Boeing, Emerson Electric Co., Perrigo Co. and Sears Holdings Corp. are scheduled to testify.

Citizens for Tax Justice said the data it released today is a “preview” of a broader study of the tax rates paid by Fortune 500 companies.

The interest group said it based its findings on company filings with the SEC that specify the companies’ tax expense. That number can be different from what companies pay in taxes to the Internal Revenue Service, which is kept private.

Bloomberg News




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