Are corporations evil when they make huge profits but pay no taxes?
Asked by
ETpro (
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)
April 16th, 2011
Recently there has been a furor in the media over General Electric, the world’s largest corporation, paying no US taxes of $14.2 billion in US profits. Exxon-Mobil is the world’s most profitable corporation, and they paid no US taxes in 2009 on $19 billion in US profits. Every year, something near 2 of every 3 US corporations manage to avoid paying any US corporate income taxes. If you look at revenue from corporate taxes, it has been steadily declining as a percent of GDP now for nearly 6 decades.
Of course this infuriates me just as much as it does the talking heads of the media who report on it. But I think their anger at the companies is misplaced. How many of us would fill out our tax return and deliberately not take a long list of deductions available to us so we could pay far more than the law requires? If we wouldn’t do it, why should we expect corporate management, whose fiduciary responsibility to investors is to maximize profits, to pay far more in taxes than they are required?
Shouldn’t we instead be angry at the politicians who let corporate lobbyist wine and dine them into writing a gagillion loopholes into the US Tax Code? Shouldn’t we be angry at Republicans who stripped funding from the IRS for tax auditors, even though each auditor brings in over $10 for every $1 spent to put them on the job? And ultimately, shouldn’t we the voters hold ourselves to task? After all, we keep electing the same circus of clowns that craft all these loopholes..
In truth, US corporations spend plenty to avoid paying taxes. They hire all the lobbyist that get them the loopholes. That came to $3.2 billion last year. Then there is GE. Sure they paid no taxes, but the tax return they filed was over 10,000 pages long. They have a department with over 9,000 accountants, attorneys and other workers to prepare that filing. And on top of that, they had to hire a small army of highly paid consultants.
We could collect FAR more by dropping the top corporate tax rate from 35% to 15% and eliminating the loopholes. And corporations would probably save money. It would be cheaper to just pay 15% of profits than to jump through all the hoops it takes to save paying any tax. What would it take to simplify the tax code and bring some rationality to the situating?
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15 Answers
I don’t think they are evil for utilizing the tax laws that benefit the corporation. What is horribly frustrating is those laws are in place. And, not to mention people are fighting to keep those laws, and even crying companies have to pay too much tax. The ignorance is the evil.
I’ll add this perspective to the conversation: major corporations often get the most use out of taxpayer funded infrastructure, like roads and waste disposal, but put in little or nothing to maintain them.
As for whether it’s the corporations or the government that we should be angrier at, I stopped seeing them as being very separate a long time ago. They function hand in hand, and are more like segments of the same body, which more or less cooperate and exist symbiotically to one another. Government, it’s been said by several writers, exists primarily as a legitimizing force for the behaviors of corporations and the economy as a whole, making laws that facilitate those things.
@incendiary_dan I like your answer that government and corporations are intertwined at his point. But, the people could influence government I believe, we still have a vote. What is stunning to me is so many of the “little people” (I include myself as a little people) believe the corporations need the lower taxes. This sales job that taxes will destroy business and mean the average guy will never have a job again is working. The argument that businesses will move their companies abroad for lower taxes is valid, but to me that means American owners need to pay tax on earnings, even if gained abroad, just like American citizens do on personal income over a certain amount. And, exports into the US probably need to be taxed more to balance things, and require foreign corporation doing business in the US to do at least what those countries require of our corporations. You say, “a legitimizing force…and the economy…” are you saying it helps the economy how the taxes are now?
Yes, as you yourself said, they are not evil by doing what is in the best interest of their owners (shareholders) if there is a way to retain more profit they are obliged (it could probably be argued they are legally obliged) to take that route. Remember the shareholders appoint a board of directors to look after both the company and the shareholders interests.
If it results in a sick feeling in the back of your throat then you can protest vocally and openly in the streets and do as much as you can to make people take their votes away from the politicians that let this continue.
It’s amazing how much tax-payers money gets thrown at multi-nationals, there is a chance that Fujitsu may get given £500m of government money here in the UK to help with the roll out of super fast broadband in the country, which is a good thing but I wonder how much is actually needed for the project and how much is needed for the profit?
It’s not the corporations who are evil for not paying taxes ( they may be evil for other reasons, but that’s another question! ), it’s the politicians, and before them the people, who are “evil” for allowing this adulterated abomination of a tax code to even exist!
This is one of the times that I completely agree with @ETpro . Let me give a quick example. Say you have a company with a tax liability of $200,0000. You know that if you use the right tax lawyers and accounts you can save anywhere from 25%-50% of your tax bill. But those guys will cost you $50,000. If you save the minimum by using them you pay $150K and pay them $50K, you’ve lost nothing. But if you get the higher end of savings you pay the government $100K and and the accountants $50K, you save $50K.
Now say you lower the rate and nothing else so that the same guy has a $150K tax liability. The accounts will still cost $50K and the savings will still be 25%-50%. But now the minimum savings is only $37.5K which means you would lose money $112.5K to taxes and $50K to accounts. It’s cheaper to just pay the tax of $150. So instead of the government getting somewhere between $100–150K in the first scenario, the actually get the full $150 by lowering the rate.
Now couple that with closing the loopholes. So that the accountants no longer save 25%-50% but maybe 10%-20% and the trade offs get even worse. It becomes cheaper to just pay the tax even at higher liability levels. And as an added bonus, by not having to engineer the business around the tax code, there is a good chance you can maximize you profits better making even higher tax payments.
The higher the tax rate and the more complicated the tax code, the more profitable it is to use high powered tax lawyers and lobbyists. We actually exacerbate the problem with higher taxes and complex tax code. There’s something wrong when you have to consult a tax attorney for every business decision.
@Jaxk lets not forget the tax the accountant pays
@RareDenver
If he’s worth the 50 thou, he doesn’t pay much.
It’s not that paying no tax makes them evil per se. It’s that the situation is insanely unfair and broken that they pay no taxes, and the reasons why they don’t. The influence of for-profit corporations and investors subsidizing politicians who then make such tax laws are the rest of the story. That, and other related ironic injustices and abuses, such as how the same politicians who fight to keep W. Bush’s tax cuts for the super-rich and for huge corporations, are also fighting to remove funding for the Environmental Protection Agency, health care programs, National Public Radio, etc.
Are your statistics accurate about GE’s 10,000 page return and percentages for tax rates and loop-hole accounting?
@Zaku Yes, the 10,000 pages and roughly 9,000 people preparing them was reported on MSNBC. I assume this came from direct contact with the company, which owns a large stake in NBC.
Look… let’s be straight about this: no “corporate entity” can be evil. Only PEOPLE can be evil.
@CaptainHarley But, but, but… The 5 ruling Justices of the US Supreme Corporatocracy have rules that corporations ARE poeple—only they have billions of dollars instead of hundreds, and they have limited liability which, if challenged successfully, gets reversed by the 5 ruling Justices of the US Supreme Corporatocracy anyway.
See? No inalienable rights! : D
I don’t think the corporations are evil, no, nor the politicians they pay to keep the laws in place. They’re simply selfish and greedy, which in a way makes them evil, but I doubt they do it out of sadism.
Are they evil because they use the law to find ways to keep their own money? Evil? I say no, they aren’t evil.
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