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TAX POLICY -
CORPORATE TAXES/WELFARE MYTHS v. REALITIES
The Truths behind
Corporate Income Taxes and
Corporate Welfare
In our companion
page, we examined some of the myths about the poor paying "too
little" in taxes, that the middle class is paying historically high
taxes, and how the rich in this country are also "overtaxed".
For a couple of reasons
we should also examine how America's corporations are faring tax-wise.
Firstly, one of the things we hear is how it would help the economy and
help businesses if we reduce their tax burden. Second, since complaints
from some Conservatives seem to be are that the poor in America "live on welfare"
and represent a drain on society, it is instructive to examine how much
welfare America's big corporations get.
Our findings are that:
a. Corporate taxes in the United States are essentially near
multi-decade lows.
b. Corporate welfare is astonishing high and represents ~3 times the
welfare for poor individuals.
In the following, we present some
snippets on this issue, based on data from:
1. ITEP
Study of Corporate Income Taxes in the 1990s, also as reported by Steven
Taub, CFO.com
2. Citizens
for Tax Justice Study of Corporate Welfare, April 2002 - PDF
3. OMB
Watch, Mar 2000
4. Citizens for Tax Justice
| Reference |
Item |
Data/Figures
(click on figures to enlarge) |
Comments |
| 2, 3 |
Facts on
Individual vs.
Corporate
Welfare |
Fact I :
Spending for corporate welfare programs
outweighs
spending for low-income programs by more than
three to one: $167 billion to $51.7
billion
(source: Aid for Dependent Corporations, from the
Corporate Welfare Project and How Much Do We Spend
on Welfare?, from the Center
on Budget and
Policy Priorities, FY 95 figures).
(Ref.
3: This year's corporate welfare figures are ~
$170 Billion)
Fact II: Total federal spending
on a safety net for
the poor costs the average taxpayer about
$400 a year, while spending on corporate welfare
programs costs the same taxpayer about
$1400 a year. (source: CBO figures)
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| 2, 3 |
Facts
on
Individual vs.
Corporate
Welfare |
Fact III: Over
90% of the budget cuts passed by the
last Congress (1996? -ed.) cut spending for the poor
-- programs that ensure food for the needy,
housing for the homeless, job training for
the unemployed, community health care for
the sick. (source: Center on Budget and
Policy Priorities, Bearing Most of the Burden, 1996).
Fact IV: Only
3.9% of total federal outlays (as
of 1996? - ed.) go to programs that solely
benefit poor people.
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| 2, 3 |
Facts
on
Individual vs.
Corporate
Welfare |
Welfare programs
for corporations do not
play by the same rules as welfare for people.
Welfare benefits for individuals and families are
limited
by strict eligibility requirements and time limits, while
corporations get corporate welfare benefits regardless
of wealth or accountability.
Fact V: Individuals
and families must demonstrate need
to receive benefits, while corporations with billions
of dollars in annual income remain on the federal dole.
Fact VI: Most
social spending is in the form of
discretionary spending, which is scrutinized in
the annual budget negotiating process in
Congress; most corporate
welfare programs are in
the form of tax expenditures, which go on and
on since they are not subject to annual review
by Congress. |
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| 1 |
Tax Rates of
250
Major U.S.
Corporations
1996-1998 |
 |
(a) A
great majority of the 250
major U.S. corporations paid
much less than the statutory
35% corporate tax
(b) A large number of
companies
making a lot of profits actually
got tax rebates!
See
Ref. 1 (page 11) for the
reasons why these companies
got these tax breaks
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| 1 |
24
companies that
paid NO Federal
Income Tax in
1998 |
 |
Note
that these companies
made a total pre-tax profit of
$11.9 Billion and they got a
total tax rebate of
$1.27 billion (instead of
paying any taxes!) |
| 1 |
Tax rates
by
Industry
1996-1998 |
 |
Note
that the oil industry was
the biggest benefactor of tax
rebates during this time period,
followed by electronics, paper,
transportation, motor vehicles/
parts, pharmaceuticals
(other than electronics -
which we
will mention in a moment, do
the other industries seem
exceedingly unsurprising?)
|
| 1 |
Stock
options
related tax
reductions
1996-1998 |
 |
Note
that computer related
companies and pharmaceutical
companies were the biggest
beneficiaries of tax reductions due
to stock option awards (while
simultaneously not having to
officially report lower earnings to
Wall Street because of stock
option expensing)
(Disclosure: we own stock options
and will be negatively affected by
laws that require stock option
expensing)
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| 1 |
Historical
trend
of effective
corporate income
tax rates |
 |
Trends
show decrease in the
late 90s. |
| 1 |
Corporate
Income
taxes as a share
of total Income
Taxes collected
in the U.S. |
 |
Corporate
income taxes are very
low relative to total income taxes
collected. |
| 2 |
Corporate
taxes
relative to U.S.
GDP |
 |
Corporate
taxes relative to the U.S.
GDP are near multi-decade lows.
Note, as
we captured in our
companion page, tax/GDP ratios
are useful in isolation but
overestimate actual tax burdens. |
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Taxes
on
dividends |
The usual
argument is that corporate dividends
are "double taxed" and that therefore this
"double-taxation" should be eliminated. Indeed, one
of
the proposed future tax cuts is in this context (also see
here).
The "double
taxation" argument
is in reality a myth.
As pointed out by Daniel
Gross:
"...The chief argument of those who
advocate eliminating
taxes on dividends is that they are subject to
"double
taxation." Shareholders pay taxes on dividends
at the rate their ordinary income is taxed. And
corporations cannot deduct dividends from
their taxable income, meaning they pay taxes on them, too.
Does that mean that dividends are double taxed? Only
if you subscribe to the belief that corporations don't
pay taxes, people do. Under this theory, since a company's
profits are ultimately distributed to owners and
shareholders in some form—dividends, profit sharing,
salaries, or capital gains—any tax on corporate
income, or any limits on the deductibility of
items from taxable income, in effect taxes the same
dollar of profits twice...
But the double-taxation argument reflects a flawed
understanding of what corporations do and why
they are formed. Corporations are distinct entities.
They are not merely passive conduits of cash. They
are legal beings, chartered by states to perform certain
objectives. They possess all sorts of prerogatives,
rights,
and protections not afforded to individuals. That's why
people form corporations, and that's why it
is just for corporations to pay taxes on their income.
As Dean Baker points out in TomPaine.com
"...Proponents of a tax preference for dividend
income
have pushed the notion that the taxation of dividend
income amounts to double taxation. The basis for this
claim is that corporate profits are subject to the
corporate
income tax. Since dividends are paid out of profits, the
argument is that the personal income tax paid on dividend
income amounts to a second tax on corporate profits. This
logic is dubious for two reasons. First, there is a legal
and
logical distinction between the corporation as an
entity and the individual shareholders who own
the firm. Second, the tax rates currently in place were
set with the knowledge that there was both a corporate
and individual income tax. This means that if there is a
moral
objection to "double taxation" then the appropriate
remedy
would also require an increase in the corporate income
tax..." |
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