Study finds many corporations pay tax rate of effectively zero

A number of U.S. corporations had an effective tax rate of less than zero in recent years, a new study has found.

Citizens for Tax Justice (CTJ) released an examination on Wednesday that said that a dozen major companies had, between them, an average effective tax rate of roughly -1.5 percent between 2008 and 2010 — well below the top marginal corporate rate of 35 percent.

The liberal-leaning group’s analysis comes more than a quarter-century after it released a similar report that is widely credited with adding momentum to the push for the last successful overhaul of the tax code, which was completed in 1986.

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Robert McIntyre, CTJ’s director, said that he hopes the center’s effort has a similar impact this time around, especially given the country’s current fiscal situation. CTJ is among the groups calling to eliminate corporate tax credits and deductions and use the profits to help pay down deficits.

“Now we’re even more desperate to get money out of these guys,” McIntyre told The Hill.

Still, McIntyre’s comments, and the study itself, also underscore the challenges policymakers face in deciding how much revenue to raise during the current efforts to reform the tax code. 

The center’s new release is something of a snapshot of a fuller study it hopes to release in the coming months that will look at the effective tax rate of Fortune 500 companies. McIntyre said he expected the broader analysis would still find an average effective rate of below 15 percent. 

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In all, CTJ found that two-thirds of the 12 companies in the analysis, which come from a wide range of industries, had an overall negative effective tax rate between 2008 and 2010. (When the group says negative rate, it means the companies got a tax benefit — not necessarily that the business got a check from the government.)

The Treasury Department, CTJ added, would have collected roughly $60 billion from the 12 companies over those three years if they had paid the top 35 percent rate. 

General Electric came in with the lowest tax rate of the dozen, -61.3 percent over those three years, after The New York Times earlier reported that it had paid no 2010 taxes and claimed a $3.2 billion tax benefit for that year. Jeffrey Immelt, GE’s chief executive, is the chairman of President Obama’s Council on Jobs and Competitiveness.

But seven other companies — American Electric Power, Dupont, Verizon, Boeing, Wells Fargo, FedEx and Honeywell — had tax rates between -0.7 percent and -9.2 percent, according to CTJ.

IBM (3.8 percent effective rate over the three years) and United Technologies (10 percent) were the only two of the dozen to have a positive effective rate all three years. ExxonMobil had the highest effective rate of the 12, at 14.2 percent, and Yahoo came in at 8.7 percent.

Aside from Immelt, the chief executives of Dupont and Boeing are also on Obama’s jobs council, while Dave Cote of Honeywell sat on the fiscal commission and voted for its recommendations. The president also announced Tuesday that he was nominating John Bryson, who sits on Boeing’s board, for Commerce secretary.

For their part, the companies themselves have said they had much higher effective rates. IBM’s most recent annual report, for instance, put its effective rate at either 25 percent or 26 percent each year between 2008 and 2010. 

McIntyre said the companies reported higher rates because they included state and local taxes, taxes they deferred paying and taxes paid to foreign governments, while CTJ looked solely at a companies’ U.S. profits and what they forked over to the federal government.

“The debate here is about U.S. tax policy, not about how Saudi Arabia treats ExxonMobil,” McIntyre said.

But Scott Hodge, the president of the Tax Foundation, said it was hard to put too much weight behind the CTJ study because it relied on companies’ financial reports to shareholders.

“For very good reasons, none of us can have and should have access to their tax returns,” said Hodge, whose nonpartisan group advocates for lower tax rates, among other things. “Financial and accounting records are not the same as a tax return, and they tell two different stories.”

Either way, the report is something else for policymakers to consider when it comes to tax reform. 

Some Democrats — and Sen. Tom Coburn (R-Okla.) — have expressed interest in a tax code revamp that lowers rates, eliminates tax loopholes and helps pay down the deficit, an approach endorsed by President Obama’s fiscal commission.

The Obama administration, meanwhile, has called for a corporate tax overhaul that would neither add nor subtract from the deficit, though Treasury Secretary Timothy Geithner has signaled lately that tax reform will be a lower priority as long as the debate over raising the debt ceiling is center stage.

On the other side of the aisle, Rep. Dave Camp (R-Mich.), the chairman of the House Ways and Means Committee, and others have said they back a revenue-neutral approach, but prefer tackling the corporate and individual code in tandem. 

And some business leaders have said a tax overhaul should not necessarily be concerned with breaking even at first, revenue-wise. In a 2007 study, the Treasury Department said that getting rid of a broad set of so-called tax expenditures would be able to offset lowering the top corporate rate to 28 percent, a figure many corporate leaders still believe is too high.