Taxing Times

Spectator

By Stephen Tuttle | March 23, 2024

Have you filed your tax returns yet? No? The deadline for the annual unpleasantness approaches rapidly.

Our tax code can be a nightmarish morass of nearly inexplicable rules and regulations. It is so big the Government Printing Office has to produce it in two volumes; one of 1,404 pages and the second a much tidier 1,248 pages.

It is a common assumption that most of us somewhere in the middle of the income stream pay most of the taxes while the very rich pay little or nothing and the very poor pay little or nothing. The cliché is that we subsidize folks at both ends of the income spectrum. It turns out that’s only partially true.

According to the National Taxpayers Union, the top 1 percent of earners—those earning at least $682,577 or more annually—are paid about 24 percent of all earned income but pay nearly 46 percent of all federal income tax. At the other end, the bottom 10 percent of earners paid about 2.3 percent.

(That top one percent also typically have plenty of passive income like stocks, annuities, bonds and other so-called non-earned income. And they control almost 90 percent of the total wealth when all their assets are included. Whether or not their 46 percent of federal income taxes represent a “fair share” or not is part of the debate.)

It may be that rich individuals are not the problem, but the companies they own or run could be instead.

The Institute for Policy Studies and Americans for Tax Fairness, both admittedly left-leaning advocacy groups, analyzed 35 large U.S. companies that paid little or no taxes over the last several years. They did manage a combined $1.8 billion in tax refunds and paid their executives $9.5 billion in bonuses.

For example, between 2018 and 2022, Tesla—whose primary owner is either the richest or second richest man on the planet—made $4.4 billion in profit but paid exactly zero in federal income taxes. In fact, they had so many incentives they not only skipped paying taxes, they managed a $1 million refund and were able to pay their top executives $2.5 billion in bonuses.

Tesla was hardly alone. Ford made $7.8 billion in U.S. profits during that same period, awarded its executives bonuses worth $355 million, but paid only $121 million in taxes, about 1.2 percent of their profits.

Other industries were equally skilled at avoiding taxes while being refunded some of the money the rest of us paid.

From 2018 through 2022 T-Mobile made an impressive $17.7 billion in earnings and paid their executives $675 million in bonuses. They also spent $9 million on lobbying efforts, which must have worked because they hauled in $80 million in tax refunds during that time. Unlike T-Mobile, Netflix actually did pay federal income taxes, nearly $236 million. But it was an anorexic 1.6 percent of their $15.1 billion earnings.

The stereotypical poster children for high profits and low tax paying are the oil and gas companies. They make easy targets given their typically stratospheric profits and the waning popularity of their products.

So Taxpayers for Common Sense, a nonpartisan group monitoring income tax collection and expenditures, took a look at the tax records of the 20 largest U.S. oil and gas producing companies. Those companies claimed to pay an average rate of more than 20 percent, but deferrals and other deductions put the actual rate at less than 12 percent. The bottom half of those 20 companies paid less than 4 percent.

Corporate tax rates were lowered from 35 percent to 21 percent during the Trump presidency, and we were told that would spur hiring and raises for existing employees, create business expansion, and increase investment. What it mostly spurred was corporations buying back as much of their own stock as possible and paying huge bonuses to their executives while federal revenues decreased and nearly $2 trillion was added to the national debt, according to the Tax Policy Center.

President Joe Biden wants to raise the corporate rate from 21 percent back to 28 percent, but the rate isn’t really the biggest problem.

Corporate America and their lobbyists can’t be blamed for successfully convincing our elected representatives they deserve deductions for almost everything. They always claim the latest deduction or loophole or subsidy is critical to provide jobs and boost the economy. It isn’t clear that ever actually proves true.

We don’t need higher corporate tax rates; the current 21 percent would be more than enough if it was actually paid. It’s the endless list of deductions, tax breaks, and loopholes big enough to steer yachts through that need reforming.

Corporations at the top of the economic food chain don’t need more freebies or tax breaks. They can boost the economy without taxpayer assistance.