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Economy Title: U.S. Corporations Are Paying Even Less in Taxes than Recently Reported U.S. Corporations Are Paying Even Less in Taxes than Recently Reported February 4, 2011 1:30 PM There's been a lot of talk lately about how much U.S. corporations actually pay in federal income taxes, and a lot of it has been wrong. This is not surprising, since corporations go to a lot of trouble to obscure what they pay in the financial reports that they must file with the Securities and Exchange Commission (SEC) each year. For example, the New York Times recently reported that General Electric paid 14.3 percent of its profits in taxes over the 2005-2009 period. While this is surprisingly low (compared to the statutory corporate income tax rate of 35 percent) it is incorrect, and the real effective rate is much lower. GE's effective tax rate for its U.S. profits was actually just 3.4 percent over that period. Our figure is based on what GE says that it paid in U.S. corporate income taxes (called "current" taxes) divided by what GE says its pretax U.S. profits were (all from GE's annual 10K reports to shareholders, filed with the SEC). There are several reasons for confusion over the effective tax rates paid by corporations. First, the U.S. only taxes corporate profits generated in the U.S. (or repatriated to the U.S.) so that it is mostly up to foreign countries to tax the profits these corporations generate offshore, and yet some people are referring to worldwide taxes U.S. corporations pay on their worldwide profits when they discuss the U.S. corporate tax system. The worldwide effective tax rate includes taxes that a corporation pays to all governments in the world. But to understand how the U.S. corporate income tax is working, one must focus on U.S. taxes paid on U.S. profits. No one expects Congress to do much about taxes that U.S. corporations pay to the governments of France, Germany, or Japan! Second, to get a sense of what a corporation pays each year, we should include the current U.S. taxes paid, but not the deferred U.S. taxes. "Deferred" is a euphemism for "not paid." Corporations can defer (delay) paying taxes if, for example, they enjoy tax breaks for accelerated depreciation, which allow them to take deductions for capital investments sooner than they would if the rules were simply based on the actual life of the investment. A company could eventually pay taxes that it has "deferred." But that doesn't happen very often. A post on the New York Times Economix blog, which received a lot of recent attention, uses data that includes the worldwide taxes, both current and deferred, paid by U.S. corporations on their worldwide profits, and tries to use this to make a point about the U.S. corporate tax system. (The NYU scholar who created this data set recently introduced another measure which rightly focuses only on profitable corporations, but the problems identified above still remain.) The point the New York Times article was trying to make is that effective corporate tax rates vary widely among companies and industries, which is true (and is a bad thing). But the worldwide tax information cited doesn't shed much light on the U.S. corporate tax system's role in these disparities. More important, as our lawmakers contemplate reforming the corporate income tax, the place to start is to have an accurate understanding of the effective tax rates that companies pay to the U.S. government. Mistakenly mixing in foreign data just muddies the waters.
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How about a different form of taxation on corporations? If a corporation fired employees while making a profit for any reason other than automation than the corporation would be fined its entire profit for that year and pay the fired employees compensation based on the number of years the employee was employed and the age of the employee. So if a life long employee is fired who is in his 50s he would get his salary in full even if fired until SS kicks in. The corporation if making a profit should not profit from greed and kicking employees off the payroll just to make the stocks go up. If the employee fired is in his 20s then he would get a paid a smaller compensation package for a limited time even if he found work. By this compensation being paid to fired employees even if they find jobs is to incentivize working. I mentioned the exception is automation but with a catch. The automated machines need to be made in the USA. If not then the penalty still applies. Also, corporate taxes would be assessed based on the balance of salaries between the highest paid officer and lowest paid employee. The lower the difference in salary% the lower the taxes.
"Keep Your Goddamn Government Hands Off My Medicare!" - Various Tea Party signs.
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