The election is over and Congress is back in Washington D.C. for a short "lame-duck" session. There are lots of calls for help that they might heed: the nearly 3 million Americans out of work for more than six months and without unemployment benefits, or the more than 3 million American workers who are trying to get by on $7.25 an hour or less, or the millions of workers without any paid sick days. Instead, members of both parties seem focused on an array of corporate tax breaks set to expire at the end of this year.
Corporate CEOs complain loudly that U.S. corporate income taxes are the highest in the world, making U.S. corporations uncompetitive in global markets. What they fail to mention is that the average large company pays less than 20 percent of its income in federal taxes, barely more than half the official 35 percent rate.
Some companies pay far less. In fact, seven of the nation's 30 largest corporations paid their CEOs more last year than they paid in taxes, according to Fleecing Uncle Sam, a new report released by the Center for Effective Government and the Institute for Policy Studies, which I co-authored. Boeing, Ford Motors, Chevron, Citigroup, Verizon, J.P Morgan and General Motors collectively reported $74.5 billion in U.S. pre-tax profits yet claimed $1.9 billion in tax refunds, an effective tax rate of negative 2.5 percent. If you paid federal income taxes last year, you paid Uncle Sam more than some of America's most profitable businesses.
These seven firms collectively paid their CEOs $121 million, an average of $17.3 million per executive.
Many reduced their tax obligations by using the very tax breaks that Congress is presently considering renewing.
Boeing saved $305 million in 2013 by using the Research and Experimentation tax credit, which many in Congress want to make permanent, at a cost of $156 billion over the next decade. Boeing paid its CEO, W. James McNerney Jr., $23 million last year and claimed an $82 million tax refund from the IRS.
Citigroup and J.P Morgan both benefited from the active financing exception that is part of the corporate tax cut package. Because of this loophole, banks and finance companies can move profits earned from interest charged in the U.S out of this country and into lower-tax nations.
Last year, Citigroup reported $6.4 billion in profits and claimed $260 million in tax refunds while paying CEO Michael Corbat $17.6 million. J.P. Morgan reported $17.2 billion in profits, collected $1.3 billion in tax refunds, and paid CEO Jamie Dimon $11.8 million.
In all, Congress is expected to consider extending corporate tax breaks that will cost more than $500 billion over the next decade — deficit reduction be damned.
If just the seven corporations examined in Fleecing Uncle Sam paid 35 percent of their income in taxes, the U.S. Treasury would have had $27 billion more last year. That's enough to rehire 377,000 public school teachers, restoring teacher-student ratios to 2008 levels. It's enough to resurface 22,240 miles of four-lane roads. It's enough to pay for two months of services offered by the Veterans Administration. Ending the tax subsidies for just these seven companies would generate enough resources to provide quality pre-K programs for every four-year old in America, an investment that would change lives and deliver positive economic benefits for decades to come.
Every corporation in America benefits from the public services and public investments that our tax dollars pay for, so every profitable company should be asked to help pay for them. Before Congress prepares to extend tax cuts to the already prosperous, we should ask our representatives to think about the broader national benefits that would come from investing in more teachers, better roads, improved care of our veterans and a brighter future for our kids.
Scott Klinger is director of revenue and spending policies for the Center for Effective Government in Washington, D.C. His email is email@example.com.