Brother, Can You Spare A Dime? How’s About A Gazillion?
August 18, 2008
Editorial The New York Times,
The Corporate Free Ride
Here is a crazy idea to address the United States’ gaping fiscal deficit: persuade corporate America to start paying taxes.
An investigation by the Government Accountability Office found that almost two-thirds of companies in the United States usually pay no corporate income taxes. Big companies, those with more than $50 million in sales or $250 million in assets, are less likely to avoid Uncle Sam altogether. Still, about a quarter of them report no tax liability either.
The G.A.O., which looked at tax returns from 1998 through 2005, does not tell us exactly how so many corporations managed to avoid the taxman. It simply notes that they were able to record sufficient expenses — salaries, interest and “other deductions” — to cancel out their taxable income.
We find it hard to believe that some two-thirds of American companies fail to turn a profit. What we find easier to believe is that corporations have become increasingly skilled at tax-avoidance strategies, including transfer pricing — overcharging their American units for products and services provided by subsidiaries abroad to artificially reduce their profits here.
The first place to look for money to close the budget deficit should be among the high-income individuals who have been treated so generously by the Bush administration. But corporate America has been getting a free pass for far too long. And the seeming ease with which corporations escape the taxman altogether compounds a fundamental unfairness in the American economy.
Even as corporate profits have soared — reaching a record of 14.1 percent of the nation’s total income in 2006 — the percentage of these profits paid out in taxes is near its lowest level since the 1930s.
It is a uniquely American paradox. This country’s corporate tax rates are among the highest in the industrial world, yet the taxes that corporations pay are among the lowest. With an enormous budget deficit and pressing demands for better health care and other social programs, America can no longer afford free riders.