While often referred to as the “non-partisan” Government Accountability Office (GAO), its results are often skewed and used to forward partisan goals. In a report released last summer, the GAO claimed that U.S. corporations (filing a Schedule M-3 for 2010) paid about 13 percent of their pretax worldwide income in federal income taxes, and 17 percent when foreign and state and local income taxes were included.
The usual suspects pounced immediately. For example, the New York Times stated, “The biggest, most profitable American companies paid only a fraction of the taxes they would owe under the official corporate rate, according to a [GAO] study. ... Using allowed deductions and legal loopholes, large corporations enjoyed a 12.6 percent tax rate, far below the 35 percent tax that is the statutory rate imposed by the federal government on corporate profits.”
Obviously, with no critical analysis politicians jumped on board. Senator Bernie Sanders of Vermont said in part, “…this report clearly shows that many multi-national corporations are currently paying very little in taxes.” Senator Carl Levin of Michigan claimed that “…some U.S. corporations use unjustifiable loopholes and offshore gimmicks to avoid paying Uncle Sam,” and, “America's large, profitable corporations are now paying a lower tax rate than our teachers and firefighters."
As Senator Daniel Patrick Moynihan was credited for saying, “Everyone is entitled to his own opinion, but not his own facts” seems a simple enough truth, yet one often forgotten by policy makers and policy wonks in Washington.
IPI noted some of the problems early on, but the troubles have grown.
PricewaterhouseCoopers international tax expert Andrew Lyon recently wrote in Tax Notes that the GAO biased the results by only considering one year, a year most favorable to the argument that corporations do not pay enough tax and even then did not bother to include all the taxes that the corporations paid. (Corporate taxes were unusually low because of the prior year’s recession and the major losses that many corporations suffered.)
When all taxes were counted and when the sample of years was more appropriate, Mr. Lyon found, "The effective tax rate based on worldwide current tax payments for all U.S. corporations exceeded 35 percent for the 2004-2010 period."
That is the effective tax rate not the marginal rate. U.S. personal effective federal income tax rate ranges from 2 percent to around 21 percent.
Having the highest marginal corporate tax rate in the world is trouble enough, but having an effective tax rate that goes even higher does real damage to the U.S. economy, making it even more difficult to attract investment and create jobs.
We need tax reform, and we need fact-finding government agencies to bring forward the facts instead of biased or misleading analysis. Policymakers must focus on the economic growth that can come from real reform, not political scores that only results in more congressional failure. Failure to act is not an option if we want a growing economy and jobs for more people.
October 30, 2013