I was a little saddened by the State of the Union address the other night and the Republican response to it. Something was missing. Of course, I wasn’t surprised. Not really. It’s been missing in our political conversation for, I don’t know . . . 20 years?
Our tax laws have been twisted to the point that major corporations making billions in profit pay little of no taxes while people struggling to make ends meet every month can pay 20-30% of their income. Ready to become angered? Here’s a list of top American Corporations with an Effective Tax Rate of 0% for the 12 months ending in October 2013 (ranked by market value in billions) :
- Verizon: $146.4
- MetLife: $53.9
- Eaton: $32.7
- Regeneron Pharmaceuticals: $29.6
- Public Storage: $29.5
- Ventas: $19.3
- Avalonbay Communities: $17.4
- Agilent Technologies: $16.9
- Vornado Realty Trust: $16.8
- Boston Properites: $16.7
- Seagate Technology: $15.9
- Broadcom: $15.7
- News Corp.: $9.8
- Lam Research: $8.8
- Kimco Realty: $8.6
- Waters: $8.5
- Macerich: $8.3
- Plum Creek Timber: $8.4
- PulteGroup: $6.4
- Apartment Investment & Management: $4.3
- Perkin Elmer: $4.2
(source: USA TODAY)
Gut wrenching, right? How do they do it? How does MetLife manage to have a 0% tax rate while you and I pay, say 28%? I mean, peak Corporate Tax Rates are about 38%, right? How did these guys manage to pay . . nothing?
Offshore transfer payments. The corporation sets up a subsidiary in a tax-friendly country to make components for its products. They then buy the components from themselves at well above cost. The subsidiary makes a big, largely untaxed profit while the US company shows a loss.
Harvesting losses. Essentially saving deductions from money losing years to offset earnings in good years. J.C. Penney, Hewlett-Packard and E-Trade make money today, but they offset those profits with losses from years gone by to arrive at a negative effective tax rate (which means, of course, that we’re paying them now).
Accounting rules. I’ve tried to understand them, but really: corporate tax rules are so bizarre that they are beyond me. Some companies speed up depreciation when times are good. Others load up their transient executives with rich severance packages that cut profit. Sometimes, as in the case of Real Estate Investment Trusts, profits are passed on to shareholders who then pay taxes on them (or find ways not to). Verizon had an effective tax rate of negative 4.8% during the period in question largely through its use of creative (but legal) accounting.
I saw a video the other day from the Bill Moyers group that addressed this kind of inequity. Though almost a year old, the video is chilling. Highlights for me included:
- Microsoft avoiding $4.5 Billion in taxes by shifting money to off-shore accounts.
- CITI having 20 subsidiaries in off-shore tax havens.
- Pfizer reporting NO taxable income from US Operations.
I see this stuff and I can’t help but wonder about the credibility of our elected officials. I’d love to say this is a Republican thing, that the party famous for protecting business is responsible for this, but I don’t hear President Obama talking about it. I don’t see Dianne Feinstein rattling her pearls in outrage. Nancy Pelosi is not championing tax code change. Washington is nearly silent on the redistribution of wealth that is going on every year when we pay our taxes (and they don’t). What do you think? Is our Congress bought and paid for? Should politicians be forced to wear jump suits ala NASCAR drivers so we can tell who their corporate sponsors are?
That’s pretty much it: my rant for early 2014. But I do want to touch on one more way in which the big guys avoid paying their fair share. They become non-profits. Take the National Football League. Yep. It’s a non-profit. Pays no taxes. Oh, somehow they have enough money to pay their Commissioner $29.5 million a year, but they still are a non-profit and pay no taxes. That kind of nonsense is all over the place. Take my own local YMCA – which I love. It’s a non-profit. I get calls several times a year about donating more than my already steep monthly dues and they have this whole estate planning arm so that I can leave them all my cash when I die. Yet, they still manage to pay their CEO – this is the local CEO of my little group of San Diego YMCAs – they pay him more than $560,000 a year (a fact that will be at the forefront of my thinking next time a donation call comes in).
April 15 is just a handful of weeks away. I’m starting to organize my shoe box of receipts. I’ll be paying taxes as I have ever year since 1965. I’m sure you’ll be doing the same. Isn’t it time we started demanding that GE – who (yes, who, not which: Corporations have ‘person-hood’ in the US), who had $108 Billion in profits stashed in off-shore subsidiaries in 2012 and who is famous for paying little or no tax – Isn’t it time we started demanding GE pay its fair share too?