Your Federal Tax Dollars at Work
by Robert S. McIntyre
The American Prospect magazine, May 20, 2002
Tax day has come and gone, and about 100 million Americans
have filed their income-tax returns. For all the grumbling about
complexity-fair enough, tax filing is way too complicated-most
of us understand that taxes pay for defending our country, protecting
our environment, building our roads, educating our children, and
all the other essential things we depend on government to do.
One thing most people probably don't realize, however, is that
almost a fifth of the income-tax dollars we send to Washington
aren't spent on these kinds of important programs. Instead, this
year more than $170 billion of our money will be paid out in corporate
If big corporations actually paid 35 percent of their U.S.
profits in federal income taxes, as the tax code ostensibly requires,
corporate income taxes this year would total at least $308 billion.
But actual corporate-tax payments this year are expected to be
only $136 billion. In other words, this year (and next), for the
first time since the early 1980S, corporate-tax loopholes will
actually cost the U.S. Treasury more than the amount companies
pay in income taxes.
The recent surge in corporate welfare reflects, in part, the
enormous new tax breaks adopted in the so-called stimulus bill.
But even before this year's new loopholes, corporate-tax welfare
had been expanding rapidly. Tax breaks for stock options, congressional
indifference to offshore corporate tax shelters, and an array
of other tax breaks have allowed many companies to earn billions
in profits yet pay little or nothing in federal income taxes.
What has this meant for specific companies? From 1996 through
2000,10 large profitable companies enjoyed a total of $50 billion
in tax breaks. That brought their combined tax bills down to only
8.9 percent of their $191 billion in U.S. profits over those five
years. In the most recent two years for which data are available,
these 1o companies received $29 billion in tax welfare, and paid
a mere 5.9 percent of their profits in federal income taxes.
Microsoft enjoyed more than 51: billion in total tax breaks
over the past five years. Microsoft, in fact, actually paid no
taxes at all in 1999, despite $12.3 billion in reported U.S. profits.
Microsoft's tax rate for the past two years was only 1.8 percent
on $21.9 billion in pre-tax U.S. profits.
General Electric, America's most profitable corporation, reported
$50.8 billion in U.S. profits over the past five years, but paid
only 1l.5 percent of that in federal income taxes. That low tax
rate reflected almost $12 billion in corporate-tax welfare.
Ford enjoyed $9.1 billion in corporate-tax-welfare over the
past five years. It reported $18.6 billion in U.S. profits over
the past two years but paid a tax rate of only 5.7 percent.
WorldCom paid no taxes at all in two of the last three years,
despite reported U.S. profits of $15.2 billion. WorldCom's total
tax rate over the three years was only 1.6 percent.
IBM reported $5.7 billion in U.S. profits in 2000 but paid
only 3.4 percent of that in federal income taxes. In 1997, IBM
reported $3.1 billion in U.S. profits; instead of paying taxes,
it got a tax rebate. Over the past five years, IBM enjoyed a total
of $4.7 billion in corporate-tax welfare.
General Motors paid no taxes at all in three of the last five
years, despite $12.5 billion in reported U.S. profits. GM's tax
rate for the past three years was negative 1.3 percent.
Enron paid no income taxes at all in four of the past five
years, despite $1.8 billion in reported U.S. profits. Enron's
total taxes over the five years were a negative $381 million.
Its corporate-tax welfare totaled $1 billion.
Rounding out the list of 10 are the El Paso Corporation, ColgatePalmolive,
and the Navistar International Corporation, all with similar stories.
Republican Senator John McCain of Arizona and House Democratic
Leader Richard Gephardt of Missouri want to do something about
corporate tax avoidance. They've introduced legislation to establish
a "Corporate Subsidy Reform Commission" to provide recommendations
about corporate taxes and spending subsidies that ought to be
Of course, the McCain-Gephardt proposal faces many roadblocks-and
not just in getting enacted. Getting a commission appointed by
President Bush-and getting congressional leaders from both parties
to agree to condemn tax breaks that benefit some of their biggest
political supporters- seems difficult if not impossible. But McCain
and Gephardt argue that recent experience with military base closings,
where the narrow constituency interests of particular senators
and representatives have frequently been overridden by the common
good, offers a promising precedent.
Couple that with McCain and Gephardt's plan to introduce further
legislation-that proposes to use the revenues raised by corporate-welfare
reductions to pay for individual tax reform and simplification,
bolster Social Security, pay down the national debt, and strengthen
essential programs- and, well, maybe they're on to something.
ROBERT S. MCINTYRE is the director of Citizens for Tax Justice.