Most U.S. Corporations Pay No Income Tax

[OhioChick]

August 13, 2008, 8:00 am

Two out of every three United States corporations paid no federal income taxes from 1998 through 2005, according to a report released Tuesday by the Government Accountability Office, the investigative arm of Congress.

The study, which is likely to add to a growing debate among politicians and policy experts over the contribution of businesses to Treasury coffers, did not identify the corporations or analyze why they had paid no taxes. It also did not say whether they had been operating properly within the tax code or illegally evading it.

The study covers 1.3 million corporations of all sizes, most of them small, with a collective $2.5 trillion in sales. It includes foreign corporations that do business in the United States.

Among foreign corporations, a slightly higher percentage, 68 percent, did not pay taxes during the period covered - compared with 66 percent for United States corporations. Even with these numbers, corporate tax receipts have risen sharply as a percentage of federal revenue in recent years.

The G.A.O. study was done at the request of two Democratic senators, Carl Levin of Michigan and Byron L. Dorgan of North Dakota. In recent years, Senator Levin has held investigations on tax evasion and urged officials and regulators to examine whether corporations were abusing tax laws by shifting income earned in higher-tax jurisdictions, like the United States, to overseas subsidiaries in low-tax jurisdictions.

Senator Levin said in written remarks on Tuesday that “this report makes clear that too many corporations are using tax trickery to send their profits overseas and avoid paying their fair share in the United States.”

But the G.A.O. said that it did not have enough data to address the role of what some policy experts say is a crucial factor in profits sent overseas.

That factor, known as transfer pricing, involves corporations’ charging their overseas subsidiaries lower prices for goods and services, a common move that lowers a corporation’s tax bill. A number of corporations are in transfer-pricing disputes with the Internal Revenue Service.

Either way, the nearly 1,000 largest United States corporations were more likely than smaller ones to pay taxes.

In 2005, one in four large United States corporations paid no taxes on revenue of $1.1 trillion, compared with 66 percent in the overall pool. Large corporations are those with at least $250 million in assets or annual sales of at least $50 million.

Joshua Barro, a staff economist at the Tax Foundation, a conservative research group, told The New York Times that the largest corporations represented only 1 percent of the total number of corporations but more than 90 percent of all corporate assets.

The vast majority of the large corporations that did not pay taxes had net losses, he said, and thus no income on which to pay taxes. “The notion that there is a large pool of untaxed corporate profits is incorrect.”

In 2004, a G.A.O. study said that 7 in 10 of all foreign corporations doing business in the United States, or foreign-controlled corporations, paid no taxes from 1996 through 2000, compared with 6 in 10 United States corporations.

http://dealbook.blogs.nytimes.com/2008/08/13/study-tallies-corporations-not-paying-income-tax/

An older article I know, but I sure hope that something is done about this. Many have forgotten since it's dropped from the front pages everywhere.

[Romulox]

1. LOL. Obama has been proposing coporate tax CUTS... So no. Nothing will be done about it.

[4 t 4]

23. I don't think that is true links please ? Thanks n/t

[Romulox]

25. Errr....check the part of DU called "latest breaking news" once in a while...

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=102x3687650

[unblock]

2. it's really criminal. i pay taxes on income AND expenses, even when i lose money in a year.

if i make $100k in income and spend $100k in shopping and such, i'm still taxed up the wazoo.

federal, state, and local income taxes all ignore spending (although taxes on spending are in some cases deductible on your federal income taxes)

and most spending is subject to sales or use taxes.

they literally get you coming and going. meanwhile, a corporation that spends exactly what it takes in would not be taxed at all.


now, i'm not one to complain about taxes, but i AM one to complain about fairness. corporations are taxes like they're nothing but passthroughs, when they behave as anything but.


in fact, deductions for my expenses that are directly linked to my earnings are limited at best. commuting expenses are considered my own damn fault for not living walking distance from my job (you can get transitcheks in some areas for a limited pretax commute). my "business casual" and "dress-up days" wardrobe is 100% my own expense, even though i'd be fired for wearing anything other than that. certain specific, rigidly defined uniforms are potentially deductible. in general, though, unreimbursed employee expenses are only deductible to the extent they exceed 2% of your adjusted gross income. that means that most employees are don't even get a tax break when their boss refuses to pay them back for something they bought on the company's behalf.

[deaniac21]

4. Guess what? If the corporation is taxed, they pass that cost on

to the consumer.

[closeupready]

5. And if the consumer can do without paying more, they will.

So they'll pass it on if they can get away with it, but just because they can make the attempt to pass it on doesn't mean they won't hurt sales. It's not like anyone sells the oxygen we breathe.

[JHB]

6. So?

If that's perfectly true, then we wind up paying either way, so there's no difference.

But that's not the only possibility, is it?

[deaniac21]

9. Any way you look at it you lose, Mrs. Robinson.

[JHB]

14. Then better to distribute the pain throughout the system...

...to better eliminate loopholes that let one dodge taxes leagally.

[deaniac21]

15. Depends on who is doing the distributing...to whom

[Hannah Bell]

17. no, it's not so simple. if prices rise, consumers reduce their buying,

buy from competitors, substitute other goods (e.g. rice for bread).

if corps could simply "pass on" taxes, they wouldn't fight them so hard, now would they?

[Greyhound]

21. God I'm so tired of hearing this Raygun bullshit spouted decade after decade,

having been disproved numerous times. Argh!
:banghead:
Another is the idiocy that it is corporations that "provide jobs".
:kick: & R

[unblock]

19. guess what? if labor is taxed, they pass THAT cost on to the employer

and if spending is taxed, they pass THAT cost on to the producers.

the reality is that any tax on a trade affects both participants in the trade and suppresses the volume of trade as well.

there's no magic that says taxes on corporations affect things dramatically differently than taxes on labor or on consumers. they all dampen economic activity and have unintended consequences.

[Political Heretic]

28. Pretty talking point - no basis in history.

Historically speaking, our times of greatest economic stability and sustained, stable growth of both the wages and the economy were during periods of responsible corporate contribution to federal revenue and sensible regulation.

Conservative market ideology does accomplish something, in fact you might argue that it accomplishes exactly what its proponents really want - it accomplishes boom/bust cycles. Their supply side, trickle down approach that claims that the corporation is the source of all wealth (false to anyone who has even the most cursory understanding of history - labor creates wealth and always has) leads to extreme surges of profit for a small group of business elites over a short term, and then, after those who raped the system have already absconded with their profits, the system collapses into bust, recession, depression or worse.

That's how it has ALWAYS worked.

[Pithlet]

35. You're right. It's so much better the way it is now.

With we the little people taking up the slack, and suffering from lost revenue that the failure to tax them costs us. Imagine what we could do with that money? With the ease of tax burden, combined with the benefits gained from a stronger infrastructure, we'd probably easily be able to afford whatever costs might be passed on to us. Yeah, I know your point is they provide a service to us with their existence. But, they also cost us with their existence, and since they aren't paying for that cost, that is a loss to us. A loss we pay for. And since they're outsourcing more and more of that benefit? Maybe it's time we started calling in that debt somehow. Either give us our jobs back, or start paying up. It's grossly unfair that they don't pay their fair share. It doesn't matter that they provide goods and jobs to us. They're turning a profit, and they're allowed to do so because of the infrastructure WE are paying for. They need to pay their fair share, too, and it's an added burden on us all that they don't.

[Azlady]

3. That is the reason I could see how the Corporations would

have taken that $3,000 tax credit for each new hire & ran with it. It is time they start paying their way, when big corporations get a REFUND, there is something wrong with that picture.

[leveymg]

7. Whole tax code needs redrafting - in 1950s corps paid 28% of federal taxes, only 7% by 2003

* Corporate revenues represented only 7.4 percent of all federal tax receipts in 2003. With the exception of 1983, this represents the lowest level on record (these data go back to 1934). http://www.cbpp.org/10-16-03tax.htm

* The share that corporate tax revenues comprise of total federal tax revenues also has collapsed, falling from an average of 28 percent of federal revenues in the 1950s and 21 percent in the 1960s to an average of about 10 percent since the 1980s.

* The effective corporate tax rate — that is, the percentage of corporate profits that is paid in federal corporate income taxes — has followed a similar pattern. During the 1990s, corporations as a group paid an average of 25.3 percent of their profits in federal corporate income taxes, according to new Congressional Research Service estimates. By contrast, they paid more than 49 percent in the 1950s, 38 percent in the 1960s, and 33 percent in the 1970s.

[SmileyRose]

8. You know, this is seriously fucked up.

We decided Corporations are people a long time ago. They have standing in court, can own property blah blah blah.

Alright - I pay taxes starting at the first penny I make and if I spend more than I make, end up with losses for the year then I still pay taxes on every single penny I made.

Yet corporations with trillions in incomes pay nothing because at the end of the year then spent more than they made.

I'm in accounting and this is nothing new to me - just pointing out how fucked up that is.

[Political Heretic]

10. There is very imporant supplement info needed before you go throwing this around

I have no idea who wrote this, but it was very helpful so I saved it in my Google Notebook along with both this artcle and the same basic article when the GAO issued a similar report covering 1998-2003.


-------
But let's look at the GAO report, itself (http://www.gao.gov/new.items/d08957.pdf).

From the Executive Summary, the GAO explains why it conducted this study: "Concerns about transfer pricing abuse have led researchers to compare the tax liabilities of foreign- and U.S.-controlled corporations … GAO was asked to update the previous reports by comparing (1) the tax liabilities of foreign-controlled domestic corporations (FCDC) and U.S.-controlled corporations (USCC) – including those reporting zero tax liabilities for 1998 through 2005 … and (2) characteristics of FCDCs and USCCs such as age, size, and industry. GAO analyzed data from the Internal Revenue Service's Statistics of Income samples of corporate tax returns."

The report, in short, has been requested to try to identify if foreign-controlled U.S. corporations are abusing transfer prices ... not to prove that U.S. corporations are not paying taxes. That discovery was an outcome of the research.

In summarizing what it found, it says: "FCDCs reported lower tax liabilities than USCCs by most measures shown in this report. A greater percentage of large FCDCs reported no tax liability in a given year from 1998 through 2005. For all corporations, a higher percentage of FCDCs reported no tax liabilities than USCCs through 2001 but differences after 2001 were not statistically significant. Mostlarge FCDCs and USCCs that reported no tax liability in 2005 also reported that they had no current-year income. A smaller proportion of these corporations had losses from prior years and tax credits that eliminated tax liability."

The report begins with a letter to Senator Carl Levin of the Permanent Subcommittee on Investigations of the Committee on Homeland Security and Governmental Affairs. It points out that the study is in response to the committee's long standing concerns about whether foreign-controlled U.S. corporations are abusing transfer prices and avoiding U.S. income tax. Transfer prices are "the prices related companies, such as a parent and a subsidiary, charge on intercompany transactions. By manipulating transfer prices, multinational corporations can shift income from higher to lower tax jurisdictions, reducing the companies' overall tax liability." Previous reports had suggested that transfer price abuses might explain some of the differences in tax liabilities paid by foreign-controlled U.S. corporations vs. U.S.-controlled corporations, but limitations in data collection made it hard to determine the exact extent of this problem. The letter also reports that the GAO analyzed data from the Internal Revenue Service's Statistics of Income (SOI) samples of corporate tax returns for tax years 1998-2005. It provides some warnings about the nature of the data (based on returns, as filed, and did not reflect audits or net operating losses; reported data are estimates, and differences between estimates may not be significant; different types of corporations use different forms; etc.). "We also report separately for large corporations – those with at least $250 million in assets or $50 million in gross receipts – because, though they account for less than one percent of all corporations, they make up over 90 percent of all assets reported on corporate returns." (pages 1-2)

In short, while Bloomberg is correct in pointing out that the report included data from millions and millions of U.S. corporations (not necessarily mom- and pop-companies, though, as Bloomberg stated), and that lots and lots might skew the overall data (as evidenced by the graph on the first page AND repeated in Figure 1, below, that Bloomberg refered to -- the one showing that 2/3 of all corporations did not pay taxes) ... Bloomberg neglects to report that the GAO separated out data from LARGE corporations and reported on them separately. As we shall see, the data is not quite as damning as the 2/3 figure quoted in the MSM, but it is still pretty darn high.

Results in Brief (page 3): "… large FCDCs were more likely to report no tax liability over multiple years than large USCCs …

(page 7): Figure 1: Percentages of FCDCs and USCCs That Reported No Tax Liability, Tax Years 1998 through 2005 shows that 60-70% of ALLforeign controlled and U.S. controlled corporations paid no taxes AND that 25-55% of LARGE foreign-controlled and U.S. controlled corporations paid no taxes.

(Here's where both sides, in trying to make their case, neglected to include ALL the data)

(page 8): Figure 2: Percentage of Large FCDCs and USCCs That Reported No Tax Liability for Multiple Years between 1998 and 2005 shows that 72% of LARGE FCDCs and 57% of LARGE USCCs reported at least one year of no tax liability between 1998 and 2005. About 57% of LARGE FCDCs and 42% of LARGE USCCs reported multiple years (2 or more) of no tax liability, while 34% of LARGE FCDCs and 24% of LARGE USCCs reported no tax liability for at least half of the period (4 or more years).

Appendix II (page 23): The number of LARGE FCDCs ranged from 898 to 1802, while the number of LARGE USCCs ranged from 3451 to 5463. These numbers are, indeed, small compared to ALL FCDCs and USCCs (42,567 and 1,375,182 respectively) – but data was kept separately for both .

And that's the pudding. The percentage of large "American" corporations -- whether owned by U.S. firms or foreign firms -- paying zero taxes is somewhat less than the extremely high 67% reported in the mainstream media; but half (or more) ... though a smaller number ... is still a significant number of profit-making operations that are avoiding paying taxes on their income.

And, to the best of my knowledge, this does not even count "American" corporations who have moved headquarters to tax-friendly off-shore locations so they don't pay taxes, either.
-------

[Hannah Bell]

18. this is part of the china story (us business interests being the prime mover of

chinese free trade over the years), credits for off-shoring jobs & HQ, etc.

It's also part of the story of GM's supposed imminent "bankruptcy". GM made a profit on its cars in 2007: its "loss" came mainly from some tax credit jiggerty pokerty in 3 countries, one being the US.

[melm00se]

11. i wonder how many of these

registered corporations are paper entities with no revenue?

[Cleita]

12. That's because taxes are collected on net income. A good accountant can

do a ledger shuffle, which insures that there will be little or no taxes paid by said corporation. It's time to start taxing them on gross income, that is all money collected in sales, rents, etc. before expenses are deducted. Even 1% or 2% or this would yield a lot. This is how our individual income is collected. We don't get to deduct our expenses except for dependent deductions and a select few credits we can take. Why should the corporations?

[deaniac21]

16. And our income comes from?

[Cleita]

20. Your point?

Could you be a little more explicit about what you are saying so I can answer?

[muriel_volestrangler]

22. Like a national sales tax, you mean

Anything that one company sells to another, you tax it. So if a farmer grows some wheat, he pays the tax on the entire amount he sells it for; then the milling company pays tax on the price it sells the flour for; then the bakery pays tax on the price it sells bread for; then the supermarket pays tax on the price it sells the bread for, again.

Of course, a chain that involves wholesalers will involve the tax being paid a lot more than 4 or 5 times. But if a supermarket bought the bakery, and bought the miller, and bought the farm, then it would only pay the tax once, because there wouldn't be any intermediate sales involved. It would be a great set-up for the mega-coprorations. What was that you were saying about 'ledger shuffles'?

[Cleita]

33. Sales tax is always added to purchases. Look at your receipts.

Now rent and other expenses like taxes will be added to what you buy, however, as the buyer you can choose to pay what you want for your goods. So if a merchant decides to charge you 15% more than what the goods cost him that he is selling to you, and you agree to pay, then that sale is income. Now if there is a sales tax it's added on that has nothing to do with income. Income now is what a merchant can get for his goods. He may get 15% above cost or he may get 5% above cost or he may get 45% above cost or even 150% above cost. It's what you are willing to pay. But it's income and that is what we should be taxing. It has nothing to do with sales tax, which is added on and which the customer is expected to pay.

[muriel_volestrangler]

38. It's the same thing, the way you want to use it

Every bit of income for a business is when money has changed hands. So a tax on all income, is a tax on all the sales of that business. Yes, you would be charging it on rent as well, so a small business that can't afford to own its own premises (which is typical, for a business just starting up) would be at a disadvantage.

But if you want to tax all gross incomes, then you are taxing the goods every time they are sold between businesses, as well as when they're sold to an end user. So goods that pass between several hands (eg food that is processed, or raw materials made into a part, which is then added to a more complicated product, or goods passing through a wholesaler or distributor) will get taxed multiple times. SO to avoid taxes in your scenario, businesses would buy up their suppliers and business customers - then they can transfer the goods between them and say "there was no income here, so there's no tax to pay". So you would encourage larger and larger buisnesses, while hurting small ones.

[Cleita]

39. Funny how all the conservative misinformation about how things work

keep appearing on DU. Regulation is what prevents the scenarios that you describe. Of course we don't have that right now and law makers would have to hit the chambers to make in happen. Right now corporations aren't paying taxes because the right corporate wing has even convinced the Democrats that this is the way business should be run, with no regulation. However, mom and pop businesses still don't get much of a tax break because they can't use the same accounting tricks the big shots use. There used to be a time that corporations could not get into business that was different than theirs. This way you never saw GE a manufacturer of electrical and electronic goods buying out entertainment companies like NBC in effect co-opting their news departments to distribute propaganda favorable to GE and other corporations.

[muriel_volestrangler]

40. "Regulation is what prevents the scenarios that you describe"; your idea has never been tried

anywhere in the world. It would be unprecedented to tax gross income. So "regulation would prevent ...". What kind of regulation do you have in mind? With the original scenario - a bakery must buy flour from an independent miller (which must buy from an independent farmer - or an independent grain dealer, who must buy from an independent farmer?), and must sell to an independent retailer? Is baking a separate business from baking? Or baking from selling bread to consumers?

What about cars? Would a car manufacturer be allowed to cast and machine its own parts, and pay no tax, or would you force them all to buy parts from a parts specialist, thus incurring tax on them? If you want to regulate all these, then you'll have to consider how every single area of business works, and how often you want to collect tax on products as they pass through the process. And all that would be to satisfy your desire to make all businesses pay tax, even those that are running at a loss.

It's not worth it.

[Cleita]

41. Excuse me but maybe it's time to try something that forces corporations to

pay their fair share. They are not and yet they are allowed to pollute and use the most of our resources that we pay for like electricity, roads, etc.. Let's start with one sector. How about the insurance industry? It produces nothing but paper work, so why not tax them on their gross income as an experiment?

[muriel_volestrangler]

42. Because the gross income of a business bears practically no relation to how rich the owners are

If a business consists of buying and selling extremely expensive products, then its gross income will be very large, though the owner may not be making very much money from it. Consider an independent gas station. They spend thousands a week on buying gas from the big petroleum companies, and sell it on to us for a few cents more per gallon, eg

The federal Energy Information Agency (EIA) estimates as of last April how much four different components contribute to the retail price: crude oil (73%), taxes (11%), refining costs and profits (10%), and distribution and marketing costs and profits (6%).

http://www.cga.ct.gov/2008/rpt/2008-R-0362.htm

If you taxed the independent retailer on their gross takings, then you'd wipe out the money they need to pay their own wages - the oil company would have have paid the tax on the 94%, and then the independent on the 100%; but an oil company that sells its own retail gas would just pay the 100%, once - so the total tax paid would be only just over half what is paid through the independent retailer route. So you'd force the independent retailer to raise their prices, and then they'd be unable to compete.

Companies and individuals pay taxes, and claim expenses to reduce their liability, on their economic activity. If you have to spend money to carry out your trade, then you can claim it against taxes. It's the same for companies.

The money it costs you to stay alive, however, is separate. The idea of basic personal allowances is that they should allow for that kind of thing.

There's no need to do an experiment on an industry, just to see what would happen. Say there were 2 insurance companies: Company A takes in $2 billion in premiums a year, pays $900 million a year in wages and other expenses, and pays out $1 billion in claims. Company B takes in $2 billion a year, pays $800 million a year in expenses, and only pays out $700 million in claims. Under your scheme, the companies would pay the same tax; but the owners of A are making just $100 million in profit, while those of B are making $500 million. You really think that's a good way of arranging it?

[Cleita]

43. So your point is that neither should pay taxes?

Incidentally, claims would be deducted, just like cost of goods would be deducted from gross income that would yield gross profit. You are talking about taxing gross income not gross profit. After that whatever they pay out in overhead including wages is really up to good or bad management. Do not include wages or other overhead expenses. Wages are one of the problem. Once the CEO and other executive officers take huge salaries it reduces the net income of the company and that shouldn't happen. So under my scheme company A would show a gross profit of $1 billion and company B would show $1,200. in gross profit because they paid out less in claims. This is how it shows up on the trial balance, then expenses are deducted to yield net profit. This enables the corporations to do creative bookkeeping so they pay no taxes. If taxes were 10% on gross profit, company A would pay less than company B because their gross income would be less. I think it's very fair.

This is how our taxes are done. We take deductions and then we are taxed on the income left. No one lets us deduct our living expenses. Corporations shouldn't be allowed to either.

[muriel_volestrangler]

44. You said you wanted to tax gross income

"It's time to start taxing them on gross income, that is all money collected in sales, rents, etc. before expenses are deducted." - post #12

If you meant gross profit all along, then my arguments don't mean much. I was basing them all on your post #12.

[Cleita]

46. I think "before expenses are deducted" was a clue.

I was assuming you knew that cost of goods sold or in case of insurance, cost of claims would always be subtracted from the revenue to yield either gross income or gross profit depending on the way the acctg. firm designates it. I apologize for confusing you. Corporations being able to subtract their overhead expenses is what gives accountants ways to make sure they never make a net profit and therefore don't pay much in the way of taxes if any. I think this needs to stop and they need to pay taxes the same way we do. Sure we can give them credits or incentives for being environmentally conscience and things like that, just like we get credits for being old or blind, but I think they should pay their taxes the same way we individuals do.

[muriel_volestrangler]

53. It was "before expenses are deducted" that meant you wouldn't allow for the cost of goods

Because that is a primary expense of a business. I now see that in post #34 you had talked about the cost of goods, but I hadn't seen that subthread when this one was under way.

Your proposal is very similar to a value added tax - each business pays a tax based on the value of the goods or services it sells, but claims back the tax that was paid on the inputs (goods or services) it buys from other firms (or individuals) that had already paid the tax on what they sold.

It is a workable tax, but many people do regard it as a regressive tax*. For instance, in the UK, the typical income tax rate is 20% (it was 23% a few years ago); the VAT rate (not paid on basic commodities such as uncooked foods from shops, or children's clothes) is 15% (was 17.5%). When the amount of household income, and where it goes, was looked at in 2002, they found that VAT took more from the poorer households, in percentage terms, than from richer ones:

Tax as percentage of gross household income by quintile:

          Bottom  2nd  3rd    4th   Top
      VAT  11.5% 7.5%  7.0%  6.3%  4.7%
income tax  3.2% 6.9% 10.3% 13.5% 18.4%

This may be because higher income households spend more of their income on buying houses, which doesn't attract value added tax (even if a house had increased in value while someone has owned it). And, despite VAT not being payable on some basics (clothes are a sore point with it - some clothes are necessities, while some are fashion - hence the attempt to make a division by exempting children's clothes, which need to be bought regularly, but there is no perfect solution), everyone ends up buying a fair amount of goods and services which attract the tax.

*: eg:

The tax package put forward by the IMF places great emphasis on the value added tax (VAT), a consumption tax levied at each stage of production and sale, and pushes countries to have few rates and few exemptions.

The general success of the VAT in Europe established it as an effective means of increasing revenue and improving efficiency. However, its success in developing countries has been mixed at best. VAT can be a regressive tax, especially when implemented at a single rate, as the IMF usually advises. This can worsen already-high inequality in developing countries, cut the tax base and cause a decrease in overall tax revenues. In addition, the 'complex' record keeping of VAT has been the source of problems: small businesses can be pushed into the informal sector, while governments may not have the administrative capacity to implement the VAT and its refund system.

http://www.brettonwoodsproject.org/art-561926

[Cleita]

55. Again you are confusing sales tax or VAT type taxes with income tax.

Sales tax is added. Income tax is subtracted from income, not added on. So let's say my company makes a million dollars in gross revenues. Before that my cost accountants figured out we could make 100% margin of profit on the cost of the goods. So let's say each widget can be sold for twice what it cost in raw materials or for a total investment of $500,000 in raw material goods we can make $500,000 over the cost in sales or a million dollars. That $500,000 is gross profit. Uncle Sam comes along and demands 2% of that $500,000 profit margin for income tax. It doesn't change the price charged for the item and it doesn't double tax because the taxes for the raw material were already taken before they were sold to my company and by deducting that from sales it eliminated double taxation. It only means the government gets 2% of sale in income tax. Now the state comes along and wants 5% sales tax, or your value added tax, so that is added on to the price of the item and identified as such on your sales receipt and you know that. That tax is recessive because poor people end up paying a larger percentage of their income in that kind of tax than rich people and it could be regarded as a double tax if VAT was taken from the corporation that provided the raw material. However, usually this is not the case as wholesale sales are usually are exempt from sales tax.

[muriel_volestrangler]

56. No, what you describe is a value added tax

Here:

Value added taxation avoids the cascade effect of sales tax by only taxing the value added at each stage of production. Value added taxation has been gaining favour over traditional sales taxes worldwide. In principle, value added taxes apply to all commercial activities involving the production and distribution of goods and the provision of services. VAT is assessed and collected on the value added to goods in each business transaction. Under this concept the government is paid tax on the gross margin of each transaction.

http://en.wikipedia.org/wiki/Value_Added_Tax

It makes no difference whether a tax is 'added' or 'subtracted'; a business will alter the final price taking into account the tax they have to pay, and what the market will pay for the goods or services. Because your tax deducts the cost of the material inputs for a company, but not the cost of other things (such as workers' wages), it works exactly like a value added tax.

[Cleita]

59. Not true. A business will charge what it can get in sales for their product.

They can add all they want to the cost of an item, but if no one buys it, they will have to lower the price until they do. Also, it has nothing to do with their overhead. The only change in overhead will be if they have to downsize because of the lack of sufficient sales, but it has nothing to do with subtracting wages, rents etc. to come up with an artificial figure to base an income tax on.

[muriel_volestrangler]

61. They're in competition with businesses paying the same taxes

so of course the taxes they pay will affect the price they charge. This is very elementary common sense, and economics.

If you think that costs, or taxes, will never affect the amount that goods or services are sold for, then I give up with you.

[Cleita]

62. Anybody who thinks that is common sense should stick to economic

theory and not go into business. The only thing that drives sales is demand and demand determines just exactly what people are willing to pay for an item. If you can't adjust your overhead to the marketplace demand then you will go out of business or go bankrupt. In some cases you should go out of business because it's no longer profitable to be in business. Why do you think that all the big box stores were able to drive the mom and pops out of business? They were able to undersell them because they could buy their product in bulk and their mark up, often more than the mom and pops, still enabled them to sell for less than the competition. They also, can manipulate their tax liability, which the mom and pops can't because they have more liabilities that they can write off. I have seen accountants take late paying accounts receivables, write them off as a loss for tax purposes and then put them back on the ledger as open again when they wanted the assets of a company to look good to the stockholders. People have been so indoctrinated into this corporate model that they really believe that AT&T and GE will go out of business because they have to pay taxes. What's making the economy tank isn't taxes, it's mismanagement from deregulation. Actually, studies have shown that when taxes are high for the rich the economy is thriving. The big corporations are not paying their fair share of taxes and the only way to fix this is to tax their gross income/profit. Even if it's only one or two percent per year, it would make a big difference. Also, many corporations not incorporated in the USA are making big profits here and not paying any taxes. They need to be taxed on every sale they make here.

[muriel_volestrangler]

63. You've just spent a lot of words saying that taxes and overheads affect the price

that businesses charge - which seems in direct opposition to what you said in post #59.

I give up.

[Cleita]

64. I said no such thing. The price is only affected by one thing and that is what

the buyer is wiling to pay. Everything else figures in, overhead, wages, cost of doing business when that price is established. it can make or break a business depending on how good a manager the businessman is, but if no one wants to buy what he is selling, it means he will be out of business rather quickly. However, this has nothing to do with large corporations shirking their duty to pay taxes and that is because they are not taxed on gross income. Imagine if you and I paid our taxes that way, if we could deduct our mortgages, food, clothing and car expenses, we wouldn't pay taxes either.

[Political Heretic]

29. How awesome would it be if we could deduct our expenses though?

:rofl:

[Cleita]

34. Or, how awesome would it be if we don't let the corporations deduct theirs.

Okay I will grant them cost of goods. So if you buy a widget for $40 and you can resell that widget for $80, I will allow them to deduct the cost of that widget because theoretically we are taxing the manufacturer for his gross sales. However, I believe that $40 of that sale, gross income, should be taxed before the business figures in their overhead, which they have carte blanche to bloviate under our system. This is what they do to us with our income. Businesses should be subject to the same rules.

[Abq_Sarah]

45. So

I shouldn't be able to deduct rent, phones, vehicles, etc... on my business? Do you realize I'd owe more in taxes than I earn in profit?

Somehow, I don't think my employees would be very happy with me closing my doors.

[Cleita]

47. No, if you can't pay your taxes on your gross income or profit after you

deduct the cost of goods sold without including your expenses then you are not a good manager, if you are AT & T. I'm assuming that you are a small business person and certainly you deserve a break. You shouldn't have to pay corporate taxes at all until you reach a pinnacle where you are a large company with lots of branches and shares traded on the stock exchange. I guess I should make this clearer, once a company goes public they need to pay taxes.

[Abq_Sarah]

49. Once a company goes public

The "profits" go back to the people who purchased stock. It's a return on their investment and they ARE taxed on it when they sell or retire.

I've never looked at AT&T's balance sheets but I can assure you that I would be loathe to invest in any company that had to pay taxes on gross sales and was not allowed to deduct operating expenses. You're not going to recoup your investment. Without a payout for investors, who in their right mind would purchase stock and without investors, how many companies are going to be able to expand, hire more workers and increase their market share?

[Cleita]

51. And that might not be a bad thing...downsizing Wall Street. n/t

[Abq_Sarah]

52. Not only downsizing wall street

But downsizing American companies as well.

Smaller companies = fewer jobs.

[Cleita]

54. That's not true, the economy will determine the number of jobs not the

size of the companies. Other companies will come into the market if the demand is there and they will compete in a true free market economy, employing as many as needed, not like this supply side economy that we have had handed to us with mega-corporations who have been downsizing bringing us high unemployment and economic disaster.

[Abq_Sarah]

58. Just out of curiosity

Do you own your own business? Have you ever had to get investors or financing?

[Cleita]

60. My late husband and I have owned our own businesses, which we sold for a profit. We always used our

own money, at first from a small inheritance that I got and then from profits from our businesses and savings. We have borrowed like any business owner to make payroll etc. through slow periods of the year to be made up for busy parts of the year, but the banks never minded extending us a line of credit because they looked at our financial statements and figured we were a good risk. Of course this was back in the days when it was possible to run a mom and pop business without being run out of town by big box chain stores.

[bobbolink]

13. And the corollary... Poor People Pay MORE taxes!

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x4800489

[4 t 4]

24. Bobby, Outstanding post

I'll pm you about your thoughts. I would be all for it.

[Pithlet]

36. Yes, they do.

And they get they least for it. The very people who benefit the most and get the most pay the least. It's way past time we changed that.

[gravity]

26. That's because most corporations don't make profits

This is a BS statistic.

When you give the same weight to a small unprofitable corporation that doesn't even make revenue and a huge multibillion international corporation, you get absurd statistics like this.

A better statistic would actually be weighted by corporate profits or revenue.

[Political Heretic]

27. It's not "BS" - but it requires a deeper understanding of the numbers.

An earlier report (1998-2003, GAO) and this one probably does too, also pointed out corporations in certain brackets of profit making that paid no taxes. In fact, a Christian Science Monitor article analyzing the report pointed out that corporations that combined for nearly 3.5 trillion in profits paid zero in taxes.

This should be taken in conjunction with the statistic already cited on this thread (though I need a citation, but it seems to jive with other information I have) that in 1950s 28% of Federal Revenue came from corporate taxes, and by the mid 2000s it was down to 7%.

This is moving in the wrong direction. And we also have plenty of information about massive corporate loopholes used to lower the effective tax rate for the average corporation to about 10% - if they can't find a way to get that down to zero.

That information was also in the earlier Christian Science Monitor article, and it is also easy to find at places like the Economic Policy Institute and the Center on Budget and Policy Priorities. The technical tax rate for corporations may be 35% (or was back then) but according to the reports, the effective average tax rate paid by corporations is between 9-11%.

That's a tax rate I'd like to have. :eyes:

[Hannah Bell]

31. corollary to which, there are numeous ways to rig a corp so it never makes profit.

yet is very profitable for some.

[GreenTea]

30. Corporations & the rich pay little or no taxes yet start wars for profit to steal the workers tax $$

That's what being a republican is all about, that's republicans ideology..."government is not there for the workers" who pay the taxes, workers should be on their own and never depend on the federal government...

But where do (workers) taxes go, what are our taxes for...

Well, for the rich of course...for their corporations, for corporate bailouts, tax cuts for the rich, subsidies (welfare) for the corporations...that's republican ideology is,socialism for the wealthy.

Why would any worker vote for a republican, ever and republican ideology?

[exboyfil]

32. U.S. corporations pay less than average of other OECD nations

http://www.cbpp.org/10-27-08tax.htm#_ftn1

13.4% for U.S. companies
16.2% for OECD average

How much is represented by the 2.8%?

The top rate is high, but the U.S. has a bunch of deductions etc that reduces the overall average. We like to monkey with the tax code to achieve particular aims.


In addition corporate taxes are graduated so many companies never reach the 35%. I guess I don't understand why you would graduate corporate taxes since corporations are not living individuals and can be subdivided into lower economic earning units???

[1]

37. this is a ridiculous argument. and they sucked all of you into the "pearl clutching"...

from the op:

"the largest corporations represented only 1 percent of the total number of corporations but more than 90 percent of all corporate assets."

1%. 90%. think about those numbers.

so the statement that "most" corporations pay no tax is a disingenuous argument. "most" corporations are tiny little entities.

you guys do get that right?

when i was a a one man consulting firm in california in the 1990's, i was required to be a corporation by my employer. so i became a corporation. i paid at least the california minimum tax of $800 each year, over and above my normal income tax. regardless of how much income i made, because that was california law.

other state laws vary about the tax a corporation must pay.

"most" don't pay, right? THAT'S BECAUSE "MOST" DON"T MAKE ANY TAXABLE INCOME.

the 1% do. not the "most."

this entire discussion is silly and stupid.

most... indeed...

[tammywammy]

48. shush you

and your damned facts. :rofl:

[Augdog20]

50. vote in online poll at my blog: on Commerce Sec

Check out my blog
and vote in online blog (Blue Republic of America):

Who should be Obama's Commerce Sec?

http://bluesunited.blogspot.com

[StreetKnowledge]

57. 2/3 of companies don't pay income tax?

Gee, that's shocking.

In 1958, corporate taxes were 27% of the government's income.

Now, it's 8%.

Anybody surprised?