Corporations are going to take all the deductions they can.Â That’s just good business. But is it good policy?
Corporations are not the bad guys: but continuing policies that encourage them to underfund their obligations to their country is stupid and dangerous.Â Corporations, like the individuals who have paid into their pensions and retirements over their lifetimes, will take from the government what the tax code entitles them to.
“With its 6,000 pages and 500 million words, the complexity of our tax code is the prime source of frustration and anger felt by millions of Americans toward their government.”
U.S. Representative Spencer Bachus (R-AL)
But corporate entitlements are a vast array of items.Â Unlike an easily quantified line item like social security, Medicare or Medicaid, corporate programs are spread through tax breaks, tax credits, deductions, grants and more.Â Calling it a patchwork is an understatement. Itâ€™s a Rubikâ€™s cube: those who can fit the pieces together win, providing millions for attorneys, lobbyists and auditors, not innovation. Since the notion that we can create a tax code that doesnâ€™t make a significant impact on the way business does business, we must question what we want. Revising the code could lead to big advantages for the economy.
The tax code supports industries that no longer need subsidies, while discouraging those that do. Senator Bernie Sanders (VT-D) posted his list of the 10 worst corporate income tax avoiders.Â Two of them have taken advantage of one of the largest entitlements, the Oil and Gas Deduction, which provided $585 million in deductions to two companies that made over $84 billion. Itâ€™s not a leap to think that this isnâ€™t the best use of resources when facing trillions in deficits.Â The disadvantage is that the US, once a leader in energy technologies such as solar, is now a very distant runner in the race to build a realistic, sustainable energy future.
But pointing at this one program belies the depth of the problem.Â On Senator Sanders list (below), the top ten cumulatively grossed $190 Billion. Four of them paid a tax rate of 1.1%, or they received rebates, refunds or deductions in the millions of dollars. Two of them, in addition to paying little or no taxes, received bail outs in the trillions of dollars.
Let private capital pick innovation
Deductions should be universal, and apply to business practices not revenue.Â One of the flaws in the gas and oil deduction is that companies take a percentage of revenue, without needing to developÂ new plants or technologies. A better approach is to support tax credits for actual investment. Such credits attract private capital, which use the credits as a hedge against risk when investing in deployment and development of large projects.Â What this means is that public funds support private investment, while private equity does what it does best: pick winning technologies. It’s a win-win all around.
Level the playing field
No industry should be exempt from public health laws, because the result of such exemptions is that the public is left on the hook for cleanup of toxic sites.Â The gas industry is currently exempt from much of the clean water act, which leaves federal, state and local governments with the task of cleaning the water used in extracting natural gas should the fears on fracking prove well founded. If they are not well founded, then the exemptions are unneeded.
As much as the teacher who selected a low paying career partially based on the long term benefits, corporations make decisions on where to invest based on the thousands of pages of the tax code. They make promises to their shareholders and their employees, and they make demands on their supply chain and their sales force.Â They need certainty in order to plan. Short term regulations, incentives and deductions undermines long term planning. In the absence of a desperately needed national energy policy, we will have to forgo things such as the solar tax deductions which have rocked the solar industry with feast and famine cycles.Â Removing all energy subsidies would be a better solution for the renewable industry than the current policy of subsidizing oil and gas a lot, and renewables erratically and little.
Stop looking for the bad guy
Itâ€™s fun to point fingers and find the bad guy.Â Senator Sanders list caused a lot of outrage on April 18th by people who struggled to pay their own taxes, while seeing General Electric pay little to nothing.Â But a realistic, fair tax code isnâ€™t going to happen overnight. It would take the time and courage that the Tea Party lauds in those who vote for an end to collective bargaining and cuts to social service.Â Nothing is a quick fix, but everything must be on the table. At a time when we, as a nation, are looking at a deficit that leaves us worried about future generations, the notion that cuts to one sector will solve our problem is just wrong. We need a cleaner, more transparent code. It’s not the government’s job to pick industry winners and losers: it’s their job to keep an economic environment that is fair, setting standards and regulations that maintain our health, and providing a level playing field while industry experts take their bets and may the best idea win.
Senator Bernie Sanders’ list of Ten
|Income||Reason||Below is a copy of Senator Sanders’ blog.|
|Exxon Mobile||$19,000||$ 156||rebate||1)Â Â Â Â Â Exxon Mobil made $19 billion in profits in 2009.Â Exxon not only paid no federal income taxes, it actually received a $156 million rebate from the IRS, according to its SEC filings.Â (Source: Exxon Mobil’s 2009 shareholder report filed with the SEC here.)|
|Bank of America||$ 4,400||$ 1,900||refund||2)Â Â Â Â Â Bank of America received a $1.9 billion tax refund from the IRS last year, although it made $4.4 billion in profits and received a bailout from the Federal Reserve and the Treasury Department of nearly $1 trillion.Â (Source: Forbes.com here, ProPublica here and Treasury here.)|
|$ 1,000,000||bail out|
|GE||$26,000||$ 4,100||refund / 5 years||3)Â Â Â Â Â Over the past five years, while General Electric made $26 billion in profits in the United States, it received a $4.1 billion refund from the IRS. (Source: Citizens for Tax Justice here and The New York Times here.Â Note: despite rumors to the contrary, the Times has stood by its story.)|
|Chevron||$10,000||$ 19||refund||4)Â Â Â Â Â Chevron received a $19 million refund from the IRS last year after it made $10 billion in profits in 2009. Â (Source: See 2009 Chevron annual report here.Â Note 15 on page FS-46 of this report shows a U.S. federal income tax liability of $128 million, but that it was able to defer $147 million for a U.S. federal income tax liability of $-19 million)|
|Boeing||$30,000||Contracts from DOD||5)Â Â Â Â Â Boeing, which received a $30 billion contract from the Pentagon to build 179 airborne tankers, got a $124 million refund from the IRS last year.Â .Â (Source: Paul Buchheit, professor, DePaul University, here and Citizens for Tax Justice here.)|
|Valero Energy||$68,000||$ 157||refund||6)Â Â Â Â Â Valero Energy, the 25th largest company in America with $68 billion in sales last year received a $157 million tax refund check from the IRS and, over the past three years, it received a $134 million tax break from the oil and gas manufacturing tax deduction. (Source: the company’s 2009 annual report, pg. 112, here.)|
|$ 134||*Oil & Gas|
|Goldman Sachs||$Â Â 2,300||$800,000||bail out||7)Â Â Â Â Â Goldman Sachs in 2008 only paid 1.1 percent of its income in taxes even though it earned a profit of $2.3 billion and received an almost $800 billion from the Federal Reserve and U.S. Treasury Department.Â (Source: Bloomberg News here, ProPublica here, Treasury Department here.)|
|1.1% tax paid|
|Citigroup||$Â Â 4,000||1.1% tax paid||income tax||8)Â Â Â Â Â Citigroup last year made more than $4 billion in profits but paid no federal income taxes. It received a $2.5 trillion bailout from the Federal Reserve and U.S. Treasury. (Source: Paul Buchheit, professor, DePaul University, here, ProPublica here, Treasury Department here.)|
|$ 2,500,000||bail out|
|ConocoPhilips||$16,000||$451||* 3 year Oil and Gas||9)Â Â Â Â Â ConocoPhillips, the fifth largest oil company in the United States, made $16 billion in profits from 2006 through 2009, but received $451 million in tax breaks through the oil and gas manufacturing deduction.Â (Sources: Profits can be found here. The deduction can be found on the company’s 2010 SEC 10-K report to shareholders on 2009 finances, pg. 127, here)|
|Carnival Cruise Lines||$11,000||1.1% tax paid||tax rate||10)Â Over the past five years, Carnival Cruise Lines made more than $11 billion in profits, but its federal income tax rate during those years was just 1.1 percent.Â (Source: The New York Times here)|
|*Oil and Gas= Oil and gas deduction|