The other day, I wrote that, while the United States government is not broke, corporate income taxes represent a small percentage of total federal tax revenue and they’ve been steadily declining for a very long time.
And that’s because, as demonstrated in a new study by the U.S. Government Accountability Office (as requested by Senator Bernie Sanders), a large percentage of U.S. corporations pay no federal income taxes.
In each year from 2006 to 2012, at least two-thirds of all active corporations had no federal income tax liability. Larger corporations were more likely to owe tax. Among large corporations (generally those with at least $10 million in assets) less than half—42.3 percent—paid no federal income tax in 2012. Of those large corporations whose financial statements reported a profit, 19.5 percent paid no federal income tax that year. Reasons why even profitable corporations may have paid no federal tax in a given year include the use of tax deductions for losses carried forward from prior years and tax incentives, such as depreciation allowances that are more generous in the federal tax code than those allowed for financial accounting purposes. Corporations that did have a federal corporate income tax liability for tax year 2012 owed $267.5 billion.
Keep that in mind the next time someone claims that the U.S. corporate tax rate needs to be lowered. The fact is, effective tax rates are much lower than statutory rates. Thus, for example, the statutory tax rate on net corporate income ranges from 15 to 35 percent, depending on the amount of income earned. For tax years 2008 to 2012, profitable large U.S. corporations paid U.S. federal income taxes amounting to, on average, only 14 percent of the pretax net income that they reported in their financial statements.
Thus, the country is not broke—but the tax system, especially when it comes to large corporations, certainly is broken.