A 2004 U.S. Government Accountability Office (GAO) study found that 61% of American corporations, including 39% of large companies, paid no corporate income taxes between 1996 and 2000. Last year, corporations shouldered just 14.4% of the total U.S. tax burden, compared with about 50% in 1940.
While
companies are getting off easy, thanks to loopholes, ordinary wage earners are
getting stuck with the tab. The tax
burden on individuals is expected to climb from $1.16 trillion in 2007 to $1.21
trillion this year, according to the Congressional Budget Office (CBO), while
corporation tax receipts are expected to decline from $370 billion to $364
billion. By 2013, the CBO
estimates, ordinary taxpayers’ bills may climb to $$1.86 trillion while
corporate tax bills drop to $327 billion.
One
strategy of corporations is to create shell companies in places like Bermuda,
Gibraltar and the Caribbean to avoid federal taxes.
Corporations set up an offshore division that has nothing more than a
post office box, according to U.S. Representative Richard E. Neal (D., Mass.),
the chairman of the House subcommittee probing tax breaks.
Experts estimate that the U.S. Treasury may be losing up to $100 billion
a year due to shell corporations.
In
one recent case, KBR – a former Halliburton subsidiary and the largest Iraq
war contractor – admitted to “reducing tax obligations” through two Cayman
Islands divisions, reportedly avoiding hundreds of millions of dollars in
Medicare and Social Security taxes. A
2004 study by the GAO found that 24 of the largest federal contractors used
Cayman Islands units to shave their tax bills.
Oil
and other multinational companies also benefit from tax breaks, some specially
written for them. Most are
perfectly legitimate, but companies sometimes push the envelope too far.
Pharmaceutical giant Merck paid $2.3 billion to the government last year for
profits related to a Bermuda partnership.
In
their defense, businesses say that U.S. corporate tax rates are the second
highest in the developed world, making our country less competitive.
But a study from the nonprofit group Citizens for Tax Justice
found that, because of loopholes, the corporate tax burden in the U.S. is
actually the world’s third lowest when measured as a percentage of gross
domestic product.
Efforts
to change the system are under way. In
February, the House of Representatives passed a bill to end $18 billion in tax
breaks for oil companies, and Representative Charles Rangel (D., N.Y.), head of
the House Ways and Means Committee, has introduced legislation to trim corporate
tax rates while reducing loopholes.