An honest look at corporate tax rates, 2008-2010. From McIntyre et al. (2011).
Apple is keeping 2/3rds of its massive cash reserves off-shore because it doesn’t want to pay taxes on them here. That’s money that the company could invest here, but isn’t. So Cuban is spectacularly wrong.
And as for McDonalds, there is evidence that the McRib reappears in correlation to downward fluctuations in hog prices. Which suggests that McDonalds’ decisions are extremely price sensitive. Taxes are a price. McDonalds gets that. That’s why their CEO just recently called for tax cuts as a way to repair the economy.
I need to call you out on the first link Jeff. At no point in that article does the CEO or CFO of Apple claim that they are keeping cash reserves off-shore to avoid tax rates in America. Whether that is empirically true is up for debate. But at no point does Rosenman quote language in which Apple’s Executive Officers claim that their holdings ratios are a result of U.S. Tax rates. Here is the portion of Rosenman’s article where he quotes Tim Cook and Peter Oppenheimer:
New CEO Tim Cook isn’t opposed to a dividend payout. He said as much in Apple’s conference call: "That said, I’m not religious about holding cash or not holding it. I’m religious about a lot of things but not that one."
However, dividend-yearning shareholders’ hopes were instantly crushed by CFO Peter Oppenheimer’s dose of reality:
"I’d like to add to Tim’s answer, just to remind everybody that a little over $81 billion of cash that we ended in the September quarter were a bit more than $54 billion or [two-thirds] of that was offshore."
Why are so much of Apple’s cash reserves offshore? Rosenman himself points out the answer:
Although Apple’s wealth is burgeoning, it’s the foreign money that is really booming. More and more, earnings have been socked away in yen, euros and the real as Apple moves into overseas markets. Currently, over two thirds, or $54 billion, lies offshore, a development that has profound implications for Apple and shareholders. Notice that cash is growing much faster overseas than in the United States because Apple’s rest of world business is on fire. At this rate, Apple’s foreign money will tower over its U.S. holdings, probably reaching a 3:1 ratio by 2013.
This, of course, is to the benefit, and not the detriment, of Apple’s American shareholders. Growth in foreign holdings increases the value of Apple’s shares. The same thing was pointed out by GE CEO Jeffrey Immelt when he was asked by Lesley Stahl for CBS News why 60% of GE’s revenue was earned overseas:
Stahl: Sixty percent of GE’s revenue is foreign.
Immelt: When I became CEO it was 30. Now, I wish all our customers were in Chicago. I mean everything about the U.S. is easier than doing business [overseas], but this is where the growth is.
Apple is keeping cash reserves overseas because that’s where the growth potential (i.e. market share) is, not because tax rates are lower. Reducing America’s corporate tax rate would not encourage Apple to bring their cash reserves back to America because their decision to invest (or not invest) in Apple’s business enterprise has more to do with demand and less to do with their tax rate. And if Jeffrey Immelt’s account is to be believed, then it’s actually easier to do business in America than in Europe or Japan. But they aren’t investing that money in America because the growth potential is simply not there.
Now we can argue about whether this growth potential is a function of structural consequences inuring from our tax policy writ large. But the specific conclusion that Apple’s business decisions are a function of quibbles over tax rates is Rosenman’s own conclusion, not that of Apple’s executive leadership. And to the extent that his analysis may be valid, he contradicts himself by pointing out that Apple’s overseas investment is a function of growth potential in overseas markets, rather than flight from America’s corporate tax rates.
As far as Mcdonald’s CEO is concerned, a recent survey of small business owners suggest that taxes are the least of their concerns when it comes to their hiring decisions. NPR discovered the same thing when they contacted medium-sized firms about their economic concerns. The assertion of McDonald’s CEO that business taxes are what’s slowing the economy sown are contradicted by the broader business community he is a part of.
At least 25 top United States companies paid more to their chief executives in 2010 than they did to the federal government in taxes, according to a study released on Wednesday.
The companies — which include household names like eBay, Boeing, General Electric (Msnbc.com is a joint venture of Microsoft Corp. and NBC Universal, which is jointly owned by Comcast Corp. and General Electric) and Verizon — averaged $1.9 billion each in profits, according to the study by the Institute for Policy Studies, a liberal-leaning research group. But a variety of shelters, loopholes and tax reduction strategies allowed the companies to average more than $400 million each in tax benefits — which can be taken as a refund or used as write-off against earnings in future years.
or is eliminating loopholes in the corporate tax code only a stealth tax hike when Democrat-appointed bipartisan debt commissions suggest it?
Maybe Tax Day’s not so bad—if you run a giant corporation. Check out more amazing tax-day charts here, from MoJo’s Dave Gilson.
Compare the above chart to this chart:
How do we have some of the highest top marginal corporate tax rates in the world, and yet the amount of taxes that corporations pay as a percentage of tax revenues is at historical lows?
Could it be our Swiss cheese tax code?
This post from jonathan-cunningham has a good list of American corporations who, despite being subject to a 35% corporate income tax rate, nonetheless pay either zero or negative federal income taxes:
1) Exxon Mobil made $19 billion in profits in 2009. Exxon not only paid no federal income taxes, it actually received a $156 million rebate from the IRS, according to its SEC filings.
2) Bank of America received a $1.9 billion tax refund from the IRS last year, although it made $4.4 billion in profits and received a bailout from the Federal Reserve and the Treasury Department of nearly $1 trillion.
3) Over the past five years, while General Electric made $26 billion in profits in the United States, it received a $4.1 billion refund from the IRS.
4) Chevron received a $19 million refund from the IRS last year after it made $10 billion in profits in 2009.
5) Boeing, which received a $30 billion contract from the Pentagon to build 179 airborne tankers, got a $124 million refund from the IRS last year.
6) Valero Energy, the 25th largest company in America with $68 billion in sales last year received a $157 million tax refund check from the IRS and, over the past three years, it received a $134 million tax break from the oil and gas manufacturing tax deduction.
7) Goldman Sachs in 2008 only paid 1.1 percent of its income in taxes even though it earned a profit of $2.3 billion and received an almost $800 billion from the Federal Reserve and U.S. Treasury Department.
8) Citigroup last year made more than $4 billion in profits but paid no federal income taxes. It received a $2.5 trillion bailout from the Federal Reserve and U.S. Treasury.
9) ConocoPhillips, the fifth largest oil company in the United States, made $16 billion in profits from 2007 through 2009, but received $451 million in tax breaks through the oil and gas manufacturing deduction.
10) Over the past five years, Carnival Cruise Lines made more than $11 billion in profits, but its federal income tax rate during those years was just 1.1 percent.
The problem here is that our tax code is so ripe with exemptions, deductions, and credits that it significantly diminishes the amount of revenue that is actually generated at any given rate of taxation. Some argue that this is actually a good thing because tax incentives can be used to encourage good behavior. But what I see in the list above, on a generous reading, is a system of good intentions run amok. We have created so many exceptions in our tax code that the marginal rates do not in any way resemble the actual tax burden of any taxpaying citizen or organization.
This has numerous negative externalities. One is that ideologues can point to the highest marginal rates and claim that taxes are swallowing up more of peoples’ income than they actually are. A second negative externality is the amount of additional energy and manpower that gets poured into spotting all these exemptions and taking advantage of them. This is great for H&R Block, but bad for taxpayers generally.
Let’s assume for a second that we want to simplify the tax code in a way that’s revenue-neutral. How could we go about doing that? Imagine how much revenue, energy and manpower we could save if we eliminated 90% of the exemptions in the tax code. We could keep a short list of deductions with a few credits for the working poor, students, and small business. We could even go so far as to keep the child tax credit and charity write-offs as well. But that’s it. Eliminating 90% of deductions would actually allow us to lower income tax rates in a revenue neutral fashion; in fact, we could do so in a way that increases revenues by lowering rates such that the lost revenue from lowering rates does not surpass the revenue gained by eliminating exemptions. This would have the incidental consequence of allowing the Federal government to nominally downsize its labor force, since the IRS would be free from all the additional man hours necessary to implement and enforce our swiss-cheese tax code. These “value-added” positions are a genuine example of the type of waste that Conservatives and Libertarians constantly complain about.
And this is just one way to start solving the problem. There are any number of ways we could improve the efficiency of our tax code; even a flat tax with a generous exemption on everyone’s income (up to, say, the 150% of the poverty line), would go a long way towards making our tax code more efficient and humane at the same time.
Yesterday, Evilteabagger posted the following chart:
This chart seems to show that U.S. corporate income taxes are higher than the rest of the world. C’est inconcevable!
First off, it is important to remember that this chart only shows the highest corporate tax rate. The corporate income tax is graduated the same way that individual income taxes are:
Secondly, you will notice in the table above that America’s corporate income tax is actually regressive: corporations with gross profits exceeding $18,333,333 are subject to a lower tax than 2 preceding brackets. So the original chart is misleading in 2 ways: it suggests to the viewer that all corporate income is subject to the highest rate, regardless of income, and it also implies, at a minimum, that high-earning corporations are subject to the 39% rate. That’s false. Only corporations with $100,000-$335,000 are subject to the 39% rate.
Thirdly, no corporation actually pays their assigned marginal rate. There are so many deductions, exemptions, and credits in our tax code, for both individuals and corporations, that we are lucky to be getting any revenue at all, especially from big corporations. Bank of America and Wells Fargo paid virtually no federal income taxes last year. Google effectively paid a 2.4% tax rate in 2010. A company spokeswoman said that Google’s practices “are very similar to those at countless other global companies operating across a wide range of industries.”
Many corporations also use shell corporations through which they disperse their revenues prior to filing taxes. This allows them not only to file at a lower rate, but each individual shell now has renewed access to many of the deductions and exemptions that the original corporation may have exhausted.
So while our top marginal corporate tax rate may be high, it doesn’t change the fact that virtually nobody is paying it. And many of our largest, most successful corporations are barely paying anything at all. In fact, corporate taxes constitute a smaller share of federal revenues today than at any time in recent history:
So let’s not pretend that our corporations are over-taxed. In both real and historical terms, American corporations are paying less taxes than they have at anytime in the last half century. Statutory marginal tax rates do not reflect in any real sense the amount of taxes that corporations actually pay at tax time.