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article imageStudy: Most U.S. Corporations Pay No Income Tax

By Chris Hogg     Aug 13, 2008 in Business
According to a government study released yesterday, the majority of U.S. and foreign companies doing business in America avoid paying federal income tax. The companies might pull in trillions of dollars worth of sales, but they don't pay out.
Digital Journal -- The Government Accountability Office in the U.S. says 57 per cent of all U.S. companies operating in the country, and 72 per cent of all foreign businesses doing business in America, paid no federal income tax for at least one year between 1998 and 2005.
In that same time period, about 57 per cent of foreign-controlled corporations (FCCs) and 42 per cent of U.S.-controlled corporations (USCCs) reported no tax liability in two or more years; and 34 per cent of FCCs and 24 per cent of USCCs reported no tax liability for at least half the study period, or four or more years.
In 2005, almost 67 per cent of 1.9 million American corporations paid no federal income tax.
The report says corporations can legally avoid paying tax if they have no income, or no net income after expenses. Most companies that avoided paying tax in 2005 had more deductions than income.
The report does not name any corporations, but says 3,500 were considered large companies with at least $250 million in assets. About one-quarter of the largest U.S. companies paid no federal income tax in 2005, despite the fact they pulled in $1.1 trillion in gross revenue.
From 1998 to 2005, sales in the U.S. accounted for $2.5 trillion in revenue. The U.S. budget deficit is projected to hit a record $486 billion next year and lawmakers are reportedly looking to close these tax holes to generate more revenue.
According to Tax-News.com, U.S. Senator Byron Dorgan (D-N.D) said:
"It’s shameful that so many corporations make big profits and pay nothing to support our country. The tax system that allows this wholesale tax avoidance is an embarrassment and unfair to hardworking Americans who pay their fair share of taxes."
The 37-page report (opens in PDF), can be found here.
Update: Aug 18, 2008
According to an opinion article in Bloomberg News, this study is deceiving and plays right into the hands of Democrats wishing to blame America's money problems on businesses. As Bloomberg's Kevin Hassett writes:
...while it is true that 60 percent to 70 percent of companies in the study paid no tax in a given year, there was a big qualification. The study focused on an Internal Revenue Service tax database that included millions and millions of companies. The vast majority of firms in the study were tiny mom- and-pop enterprises. Why did the tiny mom-and-pop enterprises pay no taxes? Because they didn't make any money! The study reported that was the reason about 80 percent of the firms in the sample avoided taxes in a given year
Hassett continues:
Democratic politicians misused and misrepresented the results of this modest GAO study to bash America's corporations and call for sweeping ``reforms.'' If they will do so in response to this minor document, one can only conclude that they will do so on the flimsiest of excuses. Leaders of the Democratic Party are so eager to portray American business as villainous that they will twist and distort facts in order justify even more punitive taxes than we already have.
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