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The Truth About Corporate Taxes

posted by Darren Gersh, Washington Bureau Chief at 5:44 PM on 08/12/08

Power Town Title GraphicWhich headline do you believe:

66% of American corporations pay no federal taxes.

Or

75% of big U.S. companies pay lion’s share of the federal corporate income tax.

Actually, both are true.

How can this be?

Well, big companies pay a lot more in taxes than small companies. That makes sense. In fact, almost 90% of federal corporate income tax is paid by companies with over half a billion dollars in assets.

At the same time, many small companies do not pay taxes because they are small or are start ups. Also, many big companies -- think GM -- don’t pay taxes because they don’t make any money.

Today a GAO report made the first headline. But it also could have made the second. And even a third: Many foreign-owned companies in the US are shifting around their income to avoid paying taxes here. I’m shocked. (Not!)

As the debate over corporate tax reform goes forward, it’s going to be hard to keep the facts straight.

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Lewis Mazanti

Since companies pass all costs along to their customers via the prices of the goods and services they provide. I suggest that we repeal all taxes except the corporation tax. We can collect from the corporations and they can collect from their customers. This will be very fair to everyone. Since the poor don’t have a lot of money they will pay the least. Since the super wealthy already have as much as they want they won’t pay very much either and since the elderly don’t need any more they will not buy much either. But the middle class and the young they need the most so they will pay the taxes according to what they can afford.

Sounds like a plan to me. No more IRS forms.

Lewis Mazanti

Since companies pass all costs along to their customers via the prices of the goods and services they provide. I suggest that we repeal all taxes except the corporation tax. We can collect from the corporations and they can collect from their customers. This will be very fair to everyone. Since the poor don’t have a lot of money they will pay the least. Since the super wealthy already have as much as they want they won’t pay very much either and since the elderly don’t need any more they will not buy much either. But the middle class and the young they need the most so they will pay the taxes according to what they can afford.

Sounds like a plan to me. No more IRS forms.

You've listed some great sites. As a MS science and video tech teacher, I see daily the shift in how students learn differently due to technology, but am frustrated in efforts to really incorporate it into a world that is still largely "seat" based and assessed. Have you read the NSF report 'Cyberlearning'. I've just seen excerpts, but it appears to summarize the issues well.

In my own classroom am hoping to incorporate more of student learning via the social connections allowed by Internet technology.

Tree Competition 2008
This homework assignment is to be completed by both the student and an adult in their household. Through this assignment we hope that the students will learn about the lifecycle of a different species and its interaction with the other components of its environment. How humans use or depend upon these species. We hope that through this exercise that students have a better appreciation for the need to conserve all species in their natural environment. Also, at the end of the assignment, there will be more plants!
To select a species, a class can visit a natural area to see and learn about the species in their natural habitat. The students may take photos of the plants for their Tree Fair display. Each student and their adult partner can choose the species that serves them best. For example someone in an apartment may chose to grow a small plant not a tree.
Each pair (student and adult partner) need to create a report with the following information: common and scientific name of the species, the date the seed was planted, the seed source (apple from lunch), the natural distribution of the tree, it conservation status, what the plant does in its ecosystem –interactions with other species, the trees biology and physiology, include the type of plant, the plants life cycle, and how the plant is used by people
After the tree fair the students are encouraged to keep nurturing their plants either in their house or transplanting their plant into the yard.

Who pays the corporate taxes? We do; the consumers of the products and services the corporations offer. Any taxes they pay are just passed on to the cost their products and services for the consumer to pay. As usual, it's the common working folks that wind up paying the "Lion's Share", not the corporate executives, directors, or wealthy investors who can afford to pay CPAs to keep their money sheltered from tax liability.

Each member state of the OECD, including the United States, with few exceptions, accepts that idea that the pricing of intra-company transactions should be as if they were transacted between arm's length parties. Many members of the organization have entered into tax treaties with each other in order to avoid the double taxation of company profits by government tax authorities. Most governments, including the United States, require some sort of documentation that describe the intercompany transactions and the amounts involved. The fact that multinational corporations appear to pay a lower effective tax rate than American domestic corporations should come as no surprise. Many foreign countries have lower effective corporate tax rates than the US. It makes sense for a multinational corporation to station certain economic activities in jurisdictions where they generate the most benefit for the corporation, including tax benefits (which are typically lesser considerations compared to the availability of skilled labor and the size and wealth of the market). Based on the premise of avoiding double taxation, a multinational corporation should only pay US corporate tax on the economic activity generated within the United States, not on all economic activities conducted by the corporation. In the case of multinational corporations, sometimes the activities that generate the most profits are stationed abroad and not within the United States. Avoidance of double taxation is one premise that almost all countries believe to be important, because they desire reciprocal treatment by foreign tax authorities for their businesses operating abroad.


Transfer pricing is a typical bugbear presented as a method through which corporations evade taxes. Where multinational companies manage to evade taxes through transfer pricing, then they deserve to be audited. If they have truly been evading taxes, then the IRS will be able to reclaim its fair share of tax. If the multinational company has, legally and through careful tax planning, managed to reduce its effective tax rate, the IRS auditors will have no grounds for claiming more taxes. Furthermore, if the company is transacting in countries with which the US has a tax treaty, it can submit to competent authority for relief from double taxation. In fact, increasingly tax authorities view transfer pricing audits as a method for generating more tax revenue. The Canada Revenue Agency has a reputation for being particularly aggressive. In the end, tax authorities trying to steal tax money that should be bound for other tax authorities is a zero-sum game. From a game theory perspective, it encourages every tax authority to have aggressive transfer pricing auditing, though all that results from this is more money being spent on audits and more money for lawyers and accountants.

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