Tax day has come and gone, and about 100 million Americans have filed their income-tax returns. For all the grumbling about complexity -- fair enough, tax filing is way too complicated -- most of us understand that taxes pay for defending our country, protecting our environment, building our roads, educating our children, and all the other essential things we depend on government to do. One thing most people probably don't realize, however, is that almost a fifth of the income-tax dollars we send to Washington aren't spent on these kinds of important programs. Instead, this year more than $170 billion of our money will be paid out in corporate welfare.
If big corporations actually paid 35 percent of their U.S. profits in federal income taxes, as the tax code ostensibly requires, corporate income taxes this year would total at least $308 billion. But actual corporate-tax payments this year are expected to be only $136 billion. In other words, this year (and next), for the first time since the early 1980s, corporate-tax loopholes will actually cost the U.S. Treasury more than the amount companies pay in income taxes.
The recent surge in corporate welfare reflects, in part, the enormous new tax breaks adopted in the so-called stimulus bill. But even before this year's new loopholes, corporate-tax welfare had been expanding rapidly. Tax breaks for stock options, congressional indifference to offshore corporate tax shelters, and an array of other tax breaks have allowed many companies to earn billions in profits, yet pay little or nothing in federal income taxes.
What has this meant for specific companies? From 1996 through 2000, 10 large profitable companies enjoyed a total of $50 billion in tax breaks. That brought their combined tax bills down to only 8.9 percent of their $191 billion in U.S. profits over the five years. In the most recent two years for which data are available, these 10 companies got $29 billion in tax welfare, and paid a mere 5.9 percent of their profits in federal income taxes.
Microsoft enjoyed more than $12 billion in total tax breaks over the past five years. Microsoft, in fact, actually paid no tax at all in 1999, despite $12.3 billion in reported U.S. profits. Microsoft's tax rate for the past two years was only 1.8 percent on $21.9 billion in pre-tax U.S. profits.
General Electric, America's most profitable corporation, reported $50.8 billion in U.S. profits over the past five years, but paid only 11.5 percent of that in federal income taxes. That low tax rate reflected almost $12 billion in corporate-tax welfare.
Ford enjoyed $9.1 billion in corporate tax welfare over the past five years. It reported $18.6 billion in U.S. profits over the past two years but paid a tax rate of only 5.7 percent.
WorldCom paid no taxes at all in two of the last three years, despite reported U.S. profits of $15.2 billion. WorldCom's total tax rate over the three years was only 1.6 percent.
IBM reported $5.7 billion in U.S. profits in 2000, but paid only 3.4 percent of that in federal income taxes. In 1997, IBM reported $3.1 billion in U.S. profits; instead of paying taxes, it got a tax rebate. Over the past five years, IBM enjoyed a total of $4.7 billion in corporate-tax welfare.
General Motors paid no taxes at all in three of the last five years, despite $12.5 billion in reported U.S. profits. GM's tax rate for the past three years was negative 1.3 percent.
Enron paid no income taxes at all in four of the past five years, despite $1.8 billion in reported U.S. profits. Enron's total taxes over the five years were a negative $381 million. Its corporate-tax welfare totaled $1 billion.
Rounding out the list of 10 are the El Paso (energy) Corporation, Colgate-Palmolive, and the Navistar (trucking) International Corporation, all with similar stories.
Republican Senator John McCain of Arizona and House Democratic Leader Richard Gephardt of Missouri want to do something about corporate tax avoidance. They've introduced legislation to establish a "Corporate Subsidy Reform Commission" to provide recommendations about corporate tax and spending subsidies that ought to be eliminated.
Of course, the McCain-Gephardt proposal faces many roadblocks -- and not just in getting enacted. Getting a commission appointed by President Bush -- and getting congressional leaders from both parties to agree to condemn tax breaks that benefit some of their biggest political supporters -- seems difficult if not impossible. But McCain and Gephardt argue that recent experience with military base closings, where the narrow constituency interests of particular senators and representatives has frequently been overridden by the common good, offers a promising precedent.
Couple that with McCain and Gephardt's plan to introduce further legislation -- that proposes to use the revenues raised by corporate-welfare reductions to pay for individual tax reform and simplification, bolster Social Security, pay down the national debt, and strengthen essential programs -- and, well, maybe they're on to something