Washington, D.C. (February 26, 2014) – A comprehensive five-year study of 288 highly profitable Fortune 500 companies finds that 111 of them paid no federal corporate income tax in at least one of the last five years while one-third paid a U.S. tax rate less than 10 percent over the same period, including 26 that paid nothing at all, Citizens for Tax Justice and the Institute on Taxation and Economic Policy said today.
Among companies headquartered in North Carolina that are featured in the report, including Progress Energy and Time Warner Cable, the report finds several North Carolina-based companies have paid no income tax, had tax rates under 3 percent, or are sheltering large portions of their profits from taxation in the U.S.
- Duke Energy, which earned $9 billion in profits over the last five years, not only paid no income tax but also received a rebate of $300 million from the federal government. It is common for utility companies to receive a large federal rebate back from the federal government—despite seeing 10-figure profits—thanks to the deduction for accelerated depreciation, which allows firms to deduct from their taxes the cost of wear and tear on their physical plant at an accelerated rate.
- International Paper made almost $3 billion in profits over the past year, but paid $74 million in taxes—effectively a tax rate of just 2.6 percent. Most middle-class families pay almost one-third of their income in personal taxes, yet this profitable corporation paid just over 2 percent.
- Merck represents another type of corporate tax avoidance: the ability to keep profits earned in the U.S. and abroad in offshore bank accounts, in turn sheltering large portions of their profits from U.S. taxation. The company made $20.3 billion in profits over the last five years, while paying just $3.5 billion in taxes. They stashed another $22 billion in offshore accounts that escaped taxation altogether.
"At a time when federal corporate tax revenues are at historic lows, now is not the time to keep giving special tax breaks to the largest, most profitable corporations in the world," said Allan Freyer, Public Policy Analyst with the Budget & Tax Center, a project of the NC Justice Center. "Closing these loopholes doesn’t punish companies for success. It simply asks them to play by the same rules everyone else does and pay their fair share in supporting the public investments that made their success possible. These investments trained their workforce, supported their research and development, kept their plants secure from violence and fire, and provided the transportation networks that ship their goods to market. Now is the time to close these loopholes once and for all."
The study examines five years’ worth of data on federal income taxes paid by 288 corporations—every Fortune 500 company that was profitable each year of the study and provided sufficient, reliable information in their financial reports to allow calculation of their effective U.S. and foreign tax rates. Although the statutory corporate federal tax income tax rate is 35 percent, these corporations paid an average effective rate of just 19.4 percent over the past five years, barely more than half the official rate.
Among the report’s other findings:
- 111 of the companies enjoyed at least one year in which their federal income tax was zero or less.
- 26 companies, including Boeing, General Electric, Priceline.com and Verizon, enjoyed negative income tax rates over the entire five-year period, despite combined pre-tax profits of $170 billion.
- Of the 125 multinational companies in this sample, two-thirds paid a lower U.S. tax rate than the rate they paid to foreign governments on their foreign profits. On average, their foreign effective tax rate was 12 percent larger than their U.S. effective rate.
- Wells Fargo tops the list of corporations receiving the most in tax subsidies, getting more than $21 billion in tax breaks from the U.S. treasury from 2008 through 2012.
- More than half of the federal corporate tax subsidies received by the companies in the study went to four industries: financial services, utilities, telecommunications, and oil, gas & pipelines.
The report outlines a set of sensible reform options that could help revitalize the corporate tax, including ending the indefinite deferral of taxes in foreign profits and tax breaks for executive stock options.
The Sorry State of Corporate Taxes is the latest in a series of comprehensive publications on corporate taxes from Citizens for Tax Justice (CTJ) and the Institute on Taxation and Economic Policy (ITEP). The two groups released their first major study on the federal income taxes that large, profitable American corporations pay, or fail to pay, in 1984, when it helped lead to the loophole-closing Tax Reform Act of 1986.
The newest study, released today, is online at www.ctj.org/corporatetaxdodgers.
Citizens for Tax Justice (CTJ), founded in 1979, is a 501(c)(4) public interest research and advocacy organization focusing on federal, state and local tax policies and their impact upon our nation (www.ctj.org).
Founded in 1980, the Institute on Taxation and Economic Policy (ITEP) is a 501(c)(3) non-profit, non-partisan research organization, based in Washington, DC, that focuses on federal and state tax policy. ITEP's mission is to inform policymakers and the public of the effects of current and proposed tax policies on tax fairness, government budgets, and sound economic policy (www.itep.org).
FOR MORE INFORMATION CONTACT: Jenice Robinson, ITEP, 202.277.8750(202) 277.8750, Jenice@ctj.org; Allan Freyer, firstname.lastname@example.org, 919.856.2151.