The Business of Not Paying Taxes
Tuesday, August 12, 2008SUSIE GHARIB: A new report from the Government Accountability Office shows two out of three corporations in the United States pay no federal corporate taxes. The finding is sure to heat up the debate over corporate tax reform. But as Darren Gersh reports, that headline has to be put into the proper context.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: By now, you are probably thinking, hey, I send my check to the tax man, why do corporations get to stiff the government? But before you get too worked up, tax expert Chris Edwards points out roughly seven out of 10 big companies do pay taxes. It's the little ones that often don't.
CHRIS EDWARDS, TAX DIRECTOR, CATO INSTITUTE: Many little companies don't earn profits, many of the smaller companies are startups. There are a lot of companies that are new companies, and no one expects new companies to make profits.
GERSH: The Government Accountability Office study did make an important point about foreign-owned companies in the U.S. It found they pay roughly a third less in taxes than American companies for every dollar invested in the United States. Former Treasury tax analyst Eric Toder says the issue may be accounting games.
ERIC TODER, SENIOR FELLOW, TAX POLICY CENTER: Through aggressive transfer pricing, they are shifting reported profits overseas, so they are booking those profits that should be attributed to the U.S. in other countries.
GERSH: Senator Byron Dorgan says these kinds of tax games have to stop.
SEN. BYRON DORGAN (D), NORTH DAKOTA: I think it's a powerful indictment of the current tax system, which tells ordinary folks, you pay your taxes, but which allows others to avoid paying taxes if they're big enough and have creative enough attorneys to find ways to avoid it.
GERSH: Edwards agrees big companies are avoiding paying Uncle Sam. It's such a big problem, he has a book coming out on the topic. But Edwards says raising taxes is not the solution.
EDWARDS: By lowering the U.S. tax rate, you are giving companies less incentive to cheat and move their profits offshore.
GERSH: Dorgan doesn't buy that.
DORGAN: It's true that our corporate tax rates are around 35 percent; the effective tax rate paid is 17 percent. And, I'm talking about corporations now, this GAO study says there are a good many of them that pay 0 percent. It's pretty hard to make a case that the tax rates are too high.
GERSH: If Congress does decide to tackle corporate tax reform, it may do what it has done before, lower the rate, but pay for it by repealing many juicy corporate tax breaks. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
