Normative Narratives


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Transparency Thursday: Robbing Peter to Pay Yourself

In an earlier Transparency Thursday post, “My Taxes Pay Your Salary”, I highlighted how large corporations often outmaneuver local municipalities when it comes to securing subsidies or tax breaks. The companies use their legal and financial advantages to convince local officials that if they do not receive this money, they will go somewhere else that will offer them a better deal. Elected officials, not wanting to be held responsible for local unemployment, often give large sums of taxpayer money to these corporations. This money is given without any guarantees on the corporation’s side, and without any meaningful assessment of the costs and benefits of giving the money. This system is, in a number of ways, broken.

But at least these companies pay their fair share right? The take money in the forms of subsidies and tax breaks, but they at least pay into the system they take from right? Of course companies, for the most part, have to pay taxes. According to the Congressional Budget Office, the U.S. received $181 billion dollars in federal corporate tax revenue in 2011. The problem; it spent an equal amount on federal corporate “tax expenditures”.

Now admittedly, this does not address the main issue here, which occurs at the state and local level. States and municipalities do not have their own corporate taxation revenue. Instead, they tax land, property, sales, and personal incomes, but not corporate profits, which are taxed by the federal government only. (These taxes add, on average, about 5% to corporate tax rates, and vary depending on state and local law). Of course there is a qualification to be made here;  the Federal government subsidizes state and local spending, so some federal corporate taxes do indirectly benefit state and municipal governments as well. However, when it is all said and done, it seems that states and municipalities often pay out much more than they receive from having the corporations in their areas. When you consider it is impossible to determine whether the company would’ve created jobs with or without the subsidies/expenditures, it becomes even more difficult to determine who is truly benefiting from taxpayer money.

It is even more alarming, if not unsurprising, that corporations dodge even their most basic tax requirements. “Only 6.6% of Uncle Sam’s tax revenue comes from corporations (down from 30% in the 1950s).” A recent NYT article highlights how tech giants, some of the U.S. most profitable and recognizable companies, often move their profits to tax shelters to avoid paying their fair share. It has been well documented that after exemptions, GE pays no corporate taxes and actually receives billions in federal subsidies, despite posting billion dollar profit margins.

“Although technology is now one of the nation’s largest and most highly valued industries, many tech companies are among the least taxed, according to government and corporate data. Over the last two years, the 71 technology companies in the Standard & Poor’s 500-stock index — including Apple, Google, Yahoo and Dell — reported paying worldwide cash taxes at a rate that, on average, was a third less than other S.& P. companies’, according to a New York Times analysis.

This is indeed an instance of robbing Peter to pay Paul, if you name happens to be Paul. Corporations manage to avoid the majority of their tax burden, and often extract money from cash strapped municipalities that would otherwise go to critical government programs. This money has little to do with needs based financing or creating jobs. It should not be surprising that corporate profits have far surpassed their pre-recession peaks, while effective corporate tax rates remain much lower than the statutory rates agreed upon in U.S law (not to mention high unemployment rates and the systematic underpaying of employees below their level of productivity).

It should also not be surprising that many business leaders are also members of groups such as “Fix the Debt”. These groups talk about cutting entitlement programs as the major focus of deficit reduction. However, many of the same people arguing to “fix the debt” are part of the debt problem; not paying their fair share and extracting every dollar of government benefits they can possibly find. There are much easier ways to “fix the debt”, ways that won’t increase poverty rates, crime rates, and human suffering.

 

Federal Revenues by Source

President Obama, as part of his 2012 campaign, called for higher taxes as an act of “new economic patriotism”.  It is time corporations, who should represent American values, answer the call and put long-run sustainability ahead of short-term profits. Not hiring workers, paying workers blow their productivity, taking more than you need and not giving what you are legally supposed to give is not a recipe for a healthy economy.  Corporations are responsible from a socially conscious point of view, but the government (Federal, State and Local) is even more responsible;  putting corporate interests ahead of the interests of those people it is elected to represent is.