Report: Close Corporate Tax Loopholes

Representation Without Taxation

Fortune 500 Companies that Spend Big on Lobbying and Avoid Taxes
Released by: PennPIRG Education Fund

Marking the second anniversary of the Supreme Court’s decision in the Citizens United vs. Federal Election Commission case—which opened the floodgates to corporate spending on elections—this report takes a hard look at the lobbying activities of profitable Fortune 500 companies that exploit loopholes and distort the tax code to avoid billions of dollars in taxes.

280 profitable Fortune 500 companies collectively paid an effective federal income tax rate of 18.5 percent, about half of the statutory 35 percent corporate tax rate, while receiving $223 billion in tax subsidies.

These corporations include most of the Fortune 500 companies that were consistently profitable from 2008 through 2010. Collectively they paid $250.8 billion in federal income taxes on a total of $1,352.8 billion in U.S. profits. If they had paid the statutory 35 percent tax on their profits, they would have paid an extra $223 billion. There are thousands of perfectly legal ways that corporations, with the help of armies of high-paid lawyers and accountants, can reduce their tax burden.

These 280 companies spent a total of $2 billion lobbying on tax and other issues between 2008 and 2010.

We also identify the “Dirty Thirty” companies that were especially aggressive at dodging taxes and lobbying Congress. These companies so deftly exploited carve outs and loopholes in the tax code that all but one of them enjoyed a negative tax rate over the three year period of the study, while spending nearly half a billion dollars to lobby Congress on issues including tax policy. Altogether they collected $10.6 billion in tax rebates from the federal government, while skirting a total of $67.9 billion in taxes they would have paid had they paid the statutory 35 percent tax rate.

Ordinary American taxpayers and small businesses must pick up the tab when major corporations avoid their taxes. Spread out over every individual tax filer
in America, the taxes avoided by the Dirty Thirty break down to an average of $481 per taxpayer.

Exploiting offshore tax havens—an example of tax dodging at its worst

Loopholes that allow corporations to avoid taxes by shifting profits offshore are particularly egregious. At least 22 of the Dirty Thirty have reported subsidiaries in offshore tax havens like the Cayman Islands. Since profit artificially shifted offshore is often counted as “foreign” profits, this corporate tax data doesn’t reflect the amount lost due to tax havens. All told, offshore tax havens cost American taxpayers an estimated $100 billion in lost revenue every year. At least 83 of the nation’s top 100 publically traded corporations have subsidiaries in tax haven countries.

Recommendations for closing offshore tax loopholes

The solution to stopping the abuse of tax havens is to end the rule that allows U.S. companies to defer taxes on their offshore profits. In the mean time, there are concrete steps Congress can take that would stop the worst of the abuses by requiring more honest rules and reporting.

The need for campaign finance reform

Corporate influence through lobbying is only the tip of the iceberg, especially given the Supreme Court’s decision in the Citizens United case. Elections have become astronomically more expensive for winning candidates over the last several years, and the 2012 election promises to be the most expensive in history.

To limit corporate money in elections, lawmakers should:

  • Require full and honest disclosure—the public should know who is funding what candidates
  • Empower shareholders—the shareholders that own corporations should have a say in how corporations spend their money on elections
  • Reverse Citizens United

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