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POLITICS: PennAve

Government study finds corporations pay less than 13 percent in taxes

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American companies pay one-third of the federal corporate income tax rate, thanks to “loopholes and gimmicks” in the tax code, the Government Accountability Office reported Monday.

The news comes just as the Senate is trying to build momentum for sweeping tax reforms, including potential changes in corporate tax rates that some lawmakers argue are too high.

The report followed a year-long study commissioned by Sens. Carl Levin, D-Mich., and Tom Coburn, R-Okla., who are the chairman and ranking Republican, respectively, on the U.S. Senate Permanent Subcommittee on Investigations.

The agency’s examination “found that, on average, large, profitable U.S. corporations paid U.S. federal income tax amounting to just 12.6 percent of their worldwide income, a tax rate which is only about one-third of the U.S. statutory rate,” the panel said in a statement issued Monday.

Levin said the study “provides more stark evidence, if any is needed, that large, profitable U.S. corporations as a whole are not paying their fair share in taxes.”

Coburn said the report demonstrates the need for broad tax reform that would close tax loopholes.

“We would be better off with a code that eliminated these loopholes so we can lower rates for both corporations and individuals,” Coburn said.

Republicans and Democrats have differing views about how to reform the tax code. While Republicans want to lower rates and broaden the tax base, Democrats have focused on eliminating tax exemptions that have benefited big corporations such as the major oil companies.

Democrats have held several hearings this year examining exploitation of the tax code by big companies, including Microsoft and Apple Inc., which legally shifted significant amounts of revenue off shore to avoid U.S. taxes.

Levin said the GAO report weakens the argument by U.S. corporations that they pay one of the highest tax rates in the world.

The nation’s official statuary corporate tax rate, combining state and local taxes, is 39.1 percent, far above the worldwide average of 25 percent. The federal tax rate is 35 percent.

“Some U.S. multinational corporations like to complain about the U.S. 35 percent statutory tax rate, but what they don’t like to admit is that hardly any of them pay anything close to it,” Levin said in the statement. “Any tax reform worth doing has to ensure that profitable multinational corporations pay the same or a larger tax rate than middle-class American families.”

Senate Finance Committee Chairman Max Baucus, D-Mont., and the panel's top Republican, Sen. Orrin Hatch, of Utah wrote to fellow Senators last week asking for ideas about how to rewrite the tax code.

Baucus and Hatch said they plan to start with a “blank slate” process that leaves out “special provisions in the form of exclusions, deductions and credits and other preferences that some refer to as tax expenditures.”

Baucus and Hatch called the tax code “bloated and outdated.”

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Susan Ferrechio

Chief Congressional Correspondent
The Washington Examiner