Corporate Taxes and Corporate Power

June 2nd, 2011 by Phil Mattera

CTJ's 1985 report

In his 2009 utopian novel Only the Super-Rich Can Save Us, Ralph Nader conjures up a scenario in which a group of enlightened retired U.S. billionaires spark a populist uprising against excessive corporate power. One of the prime issues in the revolt is widespread tax dodging by big business, aided by the various forms of corporate welfare inserted in the tax code by compliant members of Congress.

Among the real-life characters in Nader’s fantasy is Bob McIntyre (misspelled as MacIntyre), head of Citizens for Tax Justice. For more than 30 years, CTJ has been shining a light on the inequities in the U.S. tax system. During the 1980s CTJ issued a series of reports that documented the disastrous consequences of the Reagan business tax cuts and paved the way for the Tax Reform Act of 1986. That law closed many of the loopholes and cracked down on tax shelters, reversing the precipitous decline in corporate tax payments—until George W. Bush came along.

Alas, Nader’s vision has not come to pass, though a funhouse-mirror version of it can be seen in the pseudo-populist Tea Party movement instigated by some very different billionaires, the rightwing Koch Brothers. Yet McIntyre and CTJ are still on the scene and re-fighting the battles of the 1980s. Now, as then, CTJ stands out for naming names—listing the specific large corporations that pay little or no federal income taxes.

CTJ has just released a preview of its new study of corporate tax avoidance that identifies a dozen major companies—including the likes of General Electric, DuPont and Wells Fargo—that together paid less than nothing in federal income taxes over the past three years. The dirty dozen had total U.S. pretax profits of $171 billion for the period but had a combined effective tax rate of negative 1.5 percent.

Had these companies paid the full 35 percent statutory corporate rate, CTJ notes, their combined tax bill would have been about $60 billion. Instead, they got $2.5 billion from Uncle Sam. The $62 billion difference exacerbated the country’s budget deficits and national debt.

It would be comforting to imagine that brazen corporate tax avoidance is leading us to a replay of the backlash of 1986, with changes to the tax code that force big business to pay something closer to its fair share of the costs of running a government that treats it so well.

Unfortunately, that now seems as unlikely as Nader’s rebellion of the billionaires—and the reason is not just the intransigence of Republicans. The Obama Administration has adopted the bizarre position that any revenue gains from the elimination of business tax subsidies should be used to fund new reductions in the statutory corporate tax rate, which virtually no large companies pay.

In other words, the debate over corporate tax reform within the Washington establishment is between the Obama Administration’s “revenue-neutral” approach and the desire of the Republicans to shrink corporate tax liability to a point at which it can be given the Grover Norquist drowning-in-the-bathtub treatment. Corporate taxes account for less than 9 percent of federal revenues, so we have already moved far in that direction.

CTJ, to its credit, is calling for a revenue-positive approach to corporate tax reform to help alleviate the country’s fiscal problems, as are other progressive groups such as the new US Uncut movement. But there are more fundamental reasons to make business pay more.

The windfall profits produced by tax dodging also serve to enhance the overall power of large corporations and make it easier for them to engage in anti-social behavior. It is telling that CTJ’s list of major tax avoiders includes several companies—including Boeing and Verizon—that are leading foes of unions and several others—including Exxon Mobil and American Electric Power—that are key environmental villains.

A fatter bottom line for such companies means they have more money to fight stricter regulation and consumer protection, more money to undermine labor organizing drives, more money for dubious mergers and acquisitions that reduce competition, more for lavish executive compensation packages, and of course, more for lobbying and public relations efforts to make sure that overall public policy continues to serve the needs of corporations above all else.

Restoring corporate tax payments to more appropriate levels will not by itself reform big business, but it would make it easier for the rest of us to accomplish that without waiting for a group of retired billionaires to come to the rescue.

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