In November, the liberal lobbying group Citizens for Tax Justice stirred controversy with a report highlighting 280 so-called corporate tax-dodgers, highlighting companies they said were paying under the 35 percent federal income corporate tax rate. This week, the group revised its list with new data and said most of the companies that paid no taxes previously repeated that in 2011.
The latest update estimates that all but four of the 30 Fortune 500 companies that paid an average negative federal income tax rate from 2008 to 2010 continued to do so for 2011. Among the companies listed are Pepco Holdings and General Electric.
“One of the reasons we [released an update] is so many of these 30 companies asserted this was a temporary aberration in 2008 to 2010,” Bob McIntyre, director of the Citizens for Tax Justice (CTJ), said. “They said they will pay a lot of taxes soon, but ‘soon’ hasn’t come yet.”
McIntyre said the 280 companies analyzed were Fortune 500 companies that made money from 2008 to 2010. The Citizens for Tax Justice created their latest estimates from company annual reports, based on U.S. profit and amounts companies report for federal income taxes.
General Electric, which appears on the list, called the report “misleading.” Spokesman Andrew Williams said: “GE paid $2.9 billion in income cash taxes in 2011 across all of its tax jurisdictions, including payments in the U.S. In addition, GE paid more than $1 billion in other state, local and federal taxes in the U.S.”
Matthew Gardner, executive director of the Institute on Taxation and Economic Policy, CTJ’s research arm, said CTJ’s study focuses on whether companies are paying a 35 percent rate for federal income taxes, and focusing on overall taxes is “trying to change the subject.”
“As GE has said in the past, we pay taxes worldwide. But they don’t dispute that CTJ is wrong. It’s an exercise in misdirection,” Gardner said. “When deferred taxes are paid, they will show up in our report as having been paid. But the harsh reality is that GE in particular is able to defer the taxes indefinitely.”
William McBride, an economist with the Tax Foundation, said the best source of information would be a company’s tax return, which is not public information.
“The CTJ is estimating the true figure from what the company is reporting,” McBride said. “They are guessing what companies are paying in taxes.”
The U.S. became the industrialized country with the highest corporate tax rate this year when Japan lowered its corporate rate on April 1, the Tax Foundation said. The U.S. has a combined federal-state rate of 39.2 percent, according to the Tax Foundation, while Japan’s rate is 38.01 percent.
McBride said companies set aside an amount for taxes in their financial statements, as they do for loans.
“It’s uncertain for companies from year to year what taxes they will pay,” he said. “The tax code is very uncertain from year to year.”
McBride said one example of uncertainty in the tax code is an investment expensing provision, which this year allowed companies to deduct 50 percent of a new investment in the first year as an economic incentive to stimulate the economy and create jobs, which in turn lowered its federal taxable income. That “bonus depreciation” tax provision, McBride said, may be extended to 100 percent during the year. McBride said that provision alone represents about $40 to $50 billion in lost revenue for the IRS.
“Companies don’t know and that’s a big deal,” he said. “That’s just an example how uncertain the tax code is from year to year.”
Pepco Holdings had the lowest average tax rate from 2008 to 2011, according to the CTJ.
The energy company said between 2008 and 2011 Pepco Holdings, Inc. paid $1.6 billion in real estate taxes, personal property taxes, delivery taxes, use taxes, and gross receipts tax.
“Over the four year period noted in the report, PHI invested approximately $3 billion of capital into its operations of which over 50 percent of this amount was allowable as a current deduction against taxable income,” the company said in a statement to ABC News. “By contrast, this deduction far exceeded pre-tax profits reported by PHI during the same time frame. We recognize our commitment to supporting and investing in the communities we serve and that includes paying our taxes. The tax benefits allowed from these investments were consistent with applicable IRS rules and are used to help lower overall customer rates.”
Gardner said the issue is “not about corporations against individuals.”
“For every company that shows up as a low-tax corporation, there are competitors that are paying close to 35 percent,” Gardner said. “[The issue] is about a number of privileged companies that have found ways to game the system and have a tax advantage over their competitors.”