Corporations do pay lots of taxes

[The White Coat Investor]

There is this idea out there that the big corporations don't pay any taxes. It turns out that's not true according to this:

The report provides an in-depth analysis of the 2016 tax rates at the state, federal and international levels in the case of the S&P 100 companies, the largest and most established businesses in the U.S.

Companies Paying the Highest Taxes (Overall Tax Rate)			Companies Paying the Lowest Taxes (Overall Tax Rate)
1	Caterpillar Inc. (138.1%)		1	General Electric Co. (-5.1%)
2	Kinder Morgan Inc. (56.0%)		2	Exxon Mobil Corp. (-5.1%)
3	Lowe’s Cos. (40.5%)		3	Dow Chemical Co. (0.2%)
4	UnitedHealth Group Inc. (40.4%)		4	International Business Machines Corp. (3.6%)
5	CVS Health Corp. (38.4%)		5	Mondelez International Inc. (8.9%)
6	Exelon Corp. (38.3%)		6	Boeing Co. (12.1%)
7	Union Pacific Corp. (37.4%)		7	Pfizer Inc. (13.4%)
8	Comcast Corp. (37.0%)		8	PayPal Holdings Inc. (14.1%)
9	Amazon.com Inc. (36.6%)		9	Microsoft Corp. (15.0%)
10	The Home Depot Inc. (36.3%)		10	Merck & Co. (15.4%)

Key Stats

• 
  

  The overall tax rate that S&P 100 companies pay is around 27 percent.

  
  


• 
  

  S&P 100 companies pay roughly 30 percent lower rates on international taxes than U.S. taxes.

  
  


• 
  

  Tech companies, including Facebook Inc., Alphabet Inc. and Verizon Communications Inc., are still paying more than 15 percent lower rates abroad, continuing the trend from 2013, 2014 and 2015.

  
  


• 
  

  Only two S&P 100 companies are actually paying a negative overall tax rate and are therefore due a refund: General Electric Co. and Exxon Mobil Corp.

  
  


• 
  

  The average S&P 100 company pays an 12 percent higher tax rate than the top 3 percent of consumers.

  
  

 

I'm not going to lie, I was surprised to learn this. That tax is a drag on returns and thus a "stealth tax" on those who own stocks. But cutting them isn't just a tax cut for the rich (although it is that) because even though middle class people (at least those who save and invest) own them in tax-protected accounts, it shows up as lower returns/dividends.

I read a history book recently that helped me understand the origins of both a corporate and a personal income tax. It was surprisingly accidental rather than a well-thought out a priori decision.

[Zaphod]

Still, those are just numbers and can be gamed to show what they want. I neither believe CAT pays 138% nor that GE pays -5.1% (on average, maybe bad years). GE pays some kind of taxes and CAT pays significantly less. Long term average corporate taxes are near the lowest theyve ever been. Even in your high taxes category its lower than a lot of individuals taxes, which is crazy. Microsoft paying less than myself? Kind of crazy, even if its foreign, etc...I dont have the capability to put my IP into a po box in Ireland, swap assets and call it a win like they do.

I'd love to have financed my medical education with negative yielding bonds as well. Lots of great tricks out there. They dont need a decreasse, we could use a simplification, maybe cut their legal tax avoidance department for savings. US companies arent suffering due to tax drag, which as mentioned is lowest its been, possibly since taxes introduced and further shown by record levels of profits.

This is why they are looking to grab money for everyone else, as shown in the FRED graphic, corporate revenues from taxes are decreased over time, have to get it somehow. We are just paying for it one way or another.

 

[Craigy]

There's always a big corporation taking their losses which gives some great cannon fodder to whomever is advocating more taxes.

But yeah, if they make money (on average they do) they pay a ton of tax.

If they all could just find ways out of it, there would be no need for all these inversion strategies and everyone moving to ireland, etc.

[q-school]

There were a bunch of articles a few years ago on how aggressive GE is wrt taxes. Their tax department apparently was classified internally as a profit center rather than overhead.

[djohnflatfeecfp]

Zaphod wrote:

Still, those are just numbers and can be gamed to show what they want. I neither believe CAT pays 138% nor that GE pays -5.1% (on average, maybe bad years). GE pays some kind of taxes and CAT pays significantly less. Long term average corporate taxes are near the lowest theyve ever been. Even in your high taxes category its lower than a lot of individuals taxes, which is crazy. Microsoft paying less than myself? Kind of crazy, even if its foreign, etc…I dont have the capability to put my IP into a po box in Ireland, swap assets and call it a win like they do.

I’d love to have financed my medical education with negative yielding bonds as well. Lots of great tricks out there. They dont need a decreasse, we could use a simplification, maybe cut their legal tax avoidance department for savings. US companies arent suffering due to tax drag, which as mentioned is lowest its been, possibly since taxes introduced and further shown by record levels of profits.

This is why they are looking to grab money for everyone else, as shown in the FRED graphic, corporate revenues from taxes are decreased over time, have to get it somehow. We are just paying for it one way or another.

 

Click to expand...

Reminds me of the classic CPA joke of "What is 2 +2?"  CPA's response - "What do you want it to be?"

[ENT Doc]

Zaphod, I agree some of those numbers are a bit ludicrous, but just because profits are increasing (with receipts staying stable) doesn't mean that companies don't suffer from tax drag or make inefficient decisions because of it.  WCI correctly pointed out that most Americans benefit from corporate rate reductions.  Many of he remainder don't pay income tax and are heavily subsidized by their fellow Americans, so it's hard for me to worry about their lack of benefit from a corporate rate reduction.  When people talk about corporate taxes we should be talking about all things - the marginal rates, the worldwide vs territorial taxation system, the cash tax paid, and the off balance sheet liabilities.  Focusing on any one of those doesn't tell the whole picture.  The truth, at least as I see it, is that as our companies have become increasingly "world-wide" they use the foreign subsidiary "loophole" to shelter tax off shore because we have a worldwide tax system (the only in the world) and a very high marginal rate.  This leads to inefficient resource allocation.  The cash tax paid results in lower effective rates, but had those companies actually brought it back their cash tax would be matkedly higher.  The efficient solution, IMO, is to set a territorial rate like everyone else, have a very low marginal rate that only compensates the government for the benefits of C-corps, and tax us all at the individual level more.  Then you don't get all this clouded understanding of the tax situation and don't have nearly as much being spent on scheming.

[LizOB]

I just have a REALLY hard time believing that corporations will pass on their tax cuts to their lowest paid workers, as has been argued would be the effect.

All I know is I'll be really pissed if my 401k contribution limit drops to $2400

[Zaphod]

Yes things need to be simplified and cleaned up. But to say there is an aggregate drag is a bit wild. Nominally, tax receipts from corporations have been dropping for decades (see graph I linked). GDP and profits are way way up, yet taxes are not. This is almost solely due to inversions and other kinds of gimmicks. Thats not good for anyone. Who really needs a break are small business, not the crazy tax definition but mom/pop, practices, local kind of things that cant afford the fancy tax schemes, etc...

[Rotish]

That doesn’t mean homeowners, the upper middle class, and people living in states with high taxes should pay finance their tax cuts

[amphora]

I agree with Zaphod's comments regarding the ways corporations can legally reduce their tax burden. There have been numerous articles about how tech giants and pharma companies use transfer pricing and offshore subsidiaries to reduce domestic profits.

 

As the Republican tax plan is coming out today, I thought I'd also share Paul Krugman's criticisms of the rhetoric on corporate taxes.

https://krugman.blogs.nytimes.com/2017/10/14/lies-lies-lies-lies-lies-lies-lies-lies-lies-lies/?_r=0

 

[The White Coat Investor]

Rotish wrote:

That doesn’t mean homeowners, the upper middle class, and people living in states with high taxes should pay finance their tax cuts

Click to expand...

It's not "their" it's "our." I'm not sure why people view corporations as somebody else. Corporations are us. If you own stocks, you are "they." Tax us on the corporate side, tax us on the personal side, it's all the same. Sure, there might be a more efficient to design the tax code, but it's not an "us vs them" thing.

[Zaphod]

The White Coat Investor wrote:

Rotish wrote:

That doesn’t mean homeowners, the upper middle class, and people living in states with high taxes should pay finance their tax cuts

Click to expand…

It’s not “their” it’s “our.” I’m not sure why people view corporations as somebody else. Corporations are us. If you own stocks, you are “they.” Tax us on the corporate side, tax us on the personal side, it’s all the same. Sure, there might be a more efficient to design the tax code, but it’s not an “us vs them” thing.

Click to expand...

Not at all. Decrease tax burden on corporations and their profits go up, sure, stock prices might go up as well, but its not the same degree nor are you the arbiter of what to do with that dollar. Give yourself a tax break and its 100% you, and your choice how to spend/save it. Give it to a corporation and it will be some fraction of that and limited choices. Very different.

[Rotish]

Umm. It is us vs them. We’re crippling our future to the tune of trillions of dollars, and cutting those of us in HCOL areas out of potentially 5% of our Post tax income, so that I can POTENTIALLY see some higher returns (you make the stock market return comment out to be a little more cut and dry when you know how unpredictable it is)

[Craigy]

LizOB wrote:

I just have a REALLY hard time believing that corporations will pass on their tax cuts to their lowest paid workers, as has been argued would be the effect.

All I know is I’ll be really pissed if my 401k contribution limit drops to $2400

Click to expand...

They won't.  Corporations pass their tax cuts onto their bottom line and their shareholders.  They will definitely hire more and be able to afford paying more generous compensation, but they're not simply going to take their tax savings and use it to boost salary.

The benefit to the economy and workers from lower corporate taxes comes from more money being in corporate and shareholder pockets who, in turn, spend more and hire more and grow the economy.  How much that inspires you depends on how much you believe in trickle down economics.   

[Craigy]

The White Coat Investor wrote:

Rotish wrote:

That doesn’t mean homeowners, the upper middle class, and people living in states with high taxes should pay finance their tax cuts

Click to expand…

It’s not “their” it’s “our.” I’m not sure why people view corporations as somebody else. Corporations are us. If you own stocks, you are “they.” Tax us on the corporate side, tax us on the personal side, it’s all the same. Sure, there might be a more efficient to design the tax code, but it’s not an “us vs them” thing.

Click to expand...

This is a fair point to the extent you own the market.

If you have big market investments, a corporate tax is a direct tax on your wealth.

Zaphod wrote:

The White Coat Investor wrote:

Rotish wrote:

That doesn’t mean homeowners, the upper middle class, and people living in states with high taxes should pay finance their tax cuts

Click to expand…

It’s not “their” it’s “our.” I’m not sure why people view corporations as somebody else. Corporations are us. If you own stocks, you are “they.” Tax us on the corporate side, tax us on the personal side, it’s all the same. Sure, there might be a more efficient to design the tax code, but it’s not an “us vs them” thing.

Click to expand…

Not at all. Decrease tax burden on corporations and their profits go up, sure, stock prices might go up as well, but its not the same degree nor are you the arbiter of what to do with that dollar. Give yourself a tax break and its 100% you, and your choice how to spend/save it. Give it to a corporation and it will be some fraction of that and limited choices. Very different.

Click to expand...

I agree I'd rather have the dollar in my pocket, but if you keep going along that line of reasoning, you wouldn't want to invest any of your money in the market, since you have no say what they do with your money, no control, profits may or may not come back to you in the form of dividends, etc.  Better to put your dollars in the bank or start your own business.

The investors own the corporations, and thus a tax cut on corporations is a tax cut for the investors, and a tax cut for you if you are an investor.  Ultimately it's the same thing as owning a closely-held business, albeit with less control as you pointed out.