Elections 2010: Corporate Tax Claptrap

Reviewing the comments to some news story, I ran into a conservative reader’s complaint about the tax burden placed on corporate America. This is familiar Republican cant and a frequent non sequitur rebuttal to any progressive charges—as in:

Democrat, “Your supporter stepped on my supporter’s head!”

Republican, “Oh yeah, well, the corporate tax rate you support is too high.”

At which point the stunned Democrat is left sputtering and trying to follow the non-existent chain of logic.

Having seen this talking point used in a similar fashion this morning—and since taxes and the economy are theoretically the issues in which the bulk of the voting public is interested— it seems a few words of clarification are in order.

As an example of the Republican cant, here is a YouTube video of Senate Candidate Carly Fiornia repeating the fact that the United States has the second highest corporate tax rate among industrialized nations. For more on the supposed horrors of this high rate, you can see a full exposition on the GOP website. The only problem is, all this railing against the high rate of corporate taxes is claptrap.

What the Republicans point to is the highest nominal rate on corporate earnings, and it would be too high if any corporations paid it. If corporations simply totaled all their profits, entered the total on a 1040EZ tax form and mailed it off, they might pay 45%. But that is not how the real world works.

Here is how the real world of corporate taxes works. In 2009 Exxon Mobile recorded a record breaking $45.2 billion dollars profit. So at 45% they must have paid Uncle Sam about $20.34 billion right? No they paid about $15 billion in foreign income taxes, and ended up with a US income tax bill of just $26 million. If you allow the $15 billion in foreign taxes as a deduction, the $26 million US taxes are a whopping, .086% of the remainder. If a 45% tax rate is the second highest among industrialized nations, I wonder where a .086% rate ranks.

[You can find discussions of the Exxon Mobile 2009 tax payments on a number of sights. The one at “Climate Progress” shows the complete evolution of this story and includes its sources.]

Another example from the same site is that of a little mom and pop company affectionately known as General Electric. Starting with a pre-tax income of $10.3 billion and ended up not only not paying any US taxes but of receiving a tax benefit of $1.3 billion. I wonder where a negative 10% tax rate ranks.

A Government Accounting Office Study that covered the US boom years, 1966-2000, 60% of all US Companies paid no federal tax, and in the year 2000, 94% of all US corporations paid less than 5% of their total income in corporate taxes. And 82% of the top 1% of all US corporations—owning 93% of all corporate assets—paid less than 5% of their income in taxes.

So for most US corporations, while the top nominal tax rate may be 45%, the effective tax rate—what they actually pay—is between 0 and 5%. This makes talking about the need to lower the corporate tax rate claptrap—pure and simple.