Officially, corporations are supposed to pay a tax rate of 35%. But thanks to myriad loopholes in the U.S. tax code, many large businesses pay less—sometimes only a fraction of what they are supposed to pay.

 

Carnival Corporation, owner of the well-known cruise line by the same name, paid total corporate taxes (federal, state, local and foreign) equal to only 1.1% of its cumulative $11.3 billion in profits over a five-year period. Carnival is not alone in paying so little in taxes.

 

The New York Times reports that of the 500 big companies in the Standard & Poor’s stock index, 115 paid a total corporate tax rate (both federal and otherwise) of less than 20% over the last five years. For 39 of these companies, the paid rate was less than 10%.

 

For instance, Boeing paid a total tax rate of just 4.5%, Southwest Airlines 6.3%, Yahoo 7%, Prudential Financial 7.6% and General Electric 14.3%.

 

As David Leonhardt of the Times put it: “Arguably, the United States now has a corporate tax code that’s the worst of all worlds. The official rate is higher than in almost any other country, which forces companies to devote enormous time and effort to finding loopholes. Yet the government raises less money in corporate taxes than it once did, because of all the loopholes that have been added in recent decades.”

 

In his State of the Union address, President Barack Obama said the tax code “makes no sense” and has to change. Republicans want to change things, too—by eliminating the corporate income tax and replacing it with a smaller 8.5% tax on business “consumption.” What that would mean is the government, already struggling to bring in more revenue and reduce the deficit, would collect “a much smaller share of a much smaller tax base.”

-Noel Brinkerhoff

 

The Paradox of Corporate Taxes (by David Leonhardt, New York Times)

Corporate Tax Code Proves Hard to Change (by Binyamin Appelbaum, New York Times)