More Lobbying = Lower Taxes

Joseph Rotella and Dennis Van Roekel have an article at U.S. News and World Report that details more than $220 billion in tax subsidies given to some of the largest corporations in the world, allowing them to pay very low taxes even while earning record-breaking profits. And it’s hardly a coincidence that many of them pay more for lobbying than they do in taxes:

From 2008 to 2010, the 280 most profitable U.S. corporations sheltered half of their profits from taxes, thanks to tax subsidies totaling nearly $224 billion, according to a 2011 analysis by Citizens for Tax Justice. A dozen large companies, including Exxon-Mobil, Boeing, and General Electric, reaped $175 billion in profits, but their combined tax rate was negative 1.4 percent, thanks to $64 billion in subsidies from oil depletion allowances, write-offs from overseas profits, and other loopholes, according to the study.

These subsidies didn’t just come about by accident—at least 30 Fortune 500 firms pay their lobbyists more than they pay in taxes. Most small businesses can’t afford lobbyists, so it’s no surprise that the benefits of tax loopholes flow mainly to Wall Street, not Main Street.

Thanks to these loopholes, probably no major company pays the full federal corporate tax rate of 35 percent. The highest three-year average effective rate paid by any of the 12 large corporations in the Citizens for Tax Justice study was 14.2 percent—less than many middle class families.

That’s the kind of sweetheart deal most taxpayers—and most small businesses—can only dream about. We do, however, get to pick up the tab for these costly tax breaks. For starters, when corporations shirk billions of dollars in federal taxes, middle class taxpayers must bear more of the cost of national defense, healthcare, and other necessary programs.

In 1955, corporate taxes made up 27.3% of federal revenue; today, it’s 8.9%. In terms of the overall economy, corporate taxes were 4.3% of GDP in 1955 and only 1.3% now. Individual income and payroll taxes in 1955 were 58% of federal revenue; today it’s 81.5% (source for all these figures here). This is not a coincidence. The tax burden has been shifted enormously away from corporations and on to individuals. And the reason for this is the ability of corporations to spend billions of dollars on lobbyists and political contributions to get hundreds of billions of dollars in tax breaks (and trillions of dollars worth of favorable legislation — government contracts, loose or non-existent regulation, rent-seeking laws to lock competitors out of the market, etc).

Comments

  1. says

    We do, however, get to pick up the tab for these costly tax breaks. For starters, when corporations shirk billions of dollars in federal taxes, middle class taxpayers must bear more of the cost of national defense, healthcare, and other necessary programs.

    As obvious as this is, it astounds me how many people seem incapable of understanding it (I’m looking at you, libertarians). Much of the political right has convinced themselves that tax cuts are free and that there’s never any downside to them.

    Giving some group a tax cut is functionally equivalent to handing them a bag of taxpayer money. There is simply no difference. The same people who would howl in protest at the idea of sending a big fat check to corporate America seem to have no problem with giving them a targeted tax cut, even though it’s the exact same thing. And then they refuse to hold themselves accountable for the massive deficits that result.

  2. zttp says

    Would it be a good idea to recruit an economist to Freethought Blogs?

    I think that debate on the economic aspects of social justice would be useful and that FtB is a good place to do it. But this post comes across as knee-jerk anti-corporatism rather than a substantive contribution to that debate.

    The article you link to refers to a 2011 report from Citizens for Tax Justice but does not seem to provide a link to the original paper. I think they are referring to . It’s an interesting paper but is clearly partisan and sets out to provide evidence that corporations don’t pay enough tax. The methodology is, in places, questionable, particularly with regard to their assumption that the current treatment of stock options represents a tax break. They completely ignore, however, the tax deductibility of interest payments. Essentially, they unilaterally declare that some tax deductions are unfair tax breaks and then berate the corporations that benefit from them.

    I suspect that if you were posting about biology or physics you would be more rigorous in checking out the quality of the source material. Economics is important and deserves the same respect.

  3. Ichthyic says

    Would it be a good idea to recruit an economist to Freethought Blogs?

    hells yes.

    seconded, to infinity.

  4. anubisprime says

    Recently in Blighty, three companies got caught in the spotlight, or rather it was publicly revealed just how much corporation tax they paid into the country they did business in.

    The uproar was typically ferocious that dimmed to a dull roar then silence…lasted about three days!

    Although Starbucks, one of the spotlighted, did get a bit of unpleasant customer backlashing, profits dived and they panicked, finally stuttered about paying a token gesture, then muttered about restructuring its tax arrangements…
    It boasted it would pay apparently £20 million extra over the next two years…awww!…how sweet!
    Considering they paid just £8.6million to the Treasury in 14 years of trading in Britain despite sales of £3 billion that seems like a brave devil may care attitude!

    Two other companies…Google and Amazon, are equally mystified how this ‘oversight’ could have occurred!

    So far they are forlornly counting pennies and pouting a tad…but Starbucks broke ranks and they are left in no man’s land…they have remained stoically close lipped, and closed wallets seem to be their motto!

    So far they have resisted the overwhelming urge to do the honourably ethical viable and morally honest trick of actually paying some tax into a country they exploit and from which they gain some considerable profit.

  5. says

    Lobbying for money should be a crime.
    And I’d like to take this opportunity to publicly state that I am against the death penalty with only one exception.

  6. Nathair says

    Would it be a good idea to recruit an economist to Freethought Blogs?

    Paging Michael Perelman, Michael Perelman please pick up the FTB courtesy phone.

  7. says

    @ zttp:

    I find your case less than compelling.

    Where are YOUR proofs that:

    A: It’s partisan.
    B. Their methodologies are questionable.

    This link:

    http://www.ctj.org/about/board.php

    reveals a group of board members who are not, for the most part, “Privates of Industry”, never mind Captains. Is that why you call the report, “Partisan”? Do you consider tax policy reports by these groups:

    http://think-tanks.findthedata.org/d/t/Libertarian

    to be partisan?

    Or those by the Heritage Foundation, the American Enterprise Institute, and the Center for Strategic and International Studies?

    Just wondrin’.

  8. w00dview says

    Remember, though that it is those lazy poor folks that are on welfare who are the moochers bleeding America dry!

  9. baal says

    Baal’s alternative universe tax rules:
    Your corp’s tax burden must exceed your lobbying expenditures else be penalized with a penalty not to be less than 3x the lobbying cost.

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