[corp-focus] Corporate Taxes Under Attack

[Robert Weissman]

Corporate Taxes Under Attack
By Russell Mokhiber and Robert Weissman

Like little kids who squirm through dinner until they can finally grab for
dessert, Corporate America in the last few months has had a hard time
controlling its hunger for corporate tax cuts and new tax subsidies.

With President George W. Bush making his giant tax gift to rich
individuals his first major legislative priority, the administration asked
Big Business to hold off on its request for corporate tax breaks.

For weeks on end, the corporate tax lobbyists worked hard to control
themselves, sitting quietly while Congress debated whether the targeted
tax cut for the wealthy should total $1.3 trillion or $1.6 trillion over
the next decade (actually much higher with honest accounting).

But as time wore on, the waiting simply became too much, especially as it
became more and more clear that the Bush administration was going to be
able to ram through its tax gift to the rich. When talk started to emerge
of a Democratic push for a minimum wage hike, it was more than the
corporate tax lobby could stand. The business lobbyists immediately began
scheming over which corporate tax cut they could attach to a minimum wage
increase.

And that's just the beginning.  In a blockbuster interview with the
Financial Times earlier this week, Treasury Secretary Paul O'Neill said he
"absolutely" backs the abolition of taxes on corporations. That's
abolition as in all federal income taxes.

"The clear economic truth is that businesses and corporations don't pay
taxes, they just collect them for the government," O'Neill told the
Financial Times. "Because businesses and corporations have to recover all
of their costs and earn the cost of capital, after all of their expenses
including taxes."

O'Neill's argument is that it is irrational to force corporations to pay
taxes, rather than individuals, since corporations just pass on the cost
of taxes to consumers. This argument ignores the evidence showing that
corporations cannot simply pass all costs on to consumers. The underlying
notion that corporations just represent the sum of interests of
shareholders ignores the fact that corporations retain huge earnings, and
the institutional reality that corporations have a life, identity and
existence of their own, beyond that linked to shareholders. Above all, the
argument that corporate taxes should be eliminated, with taxes collected
instead from individuals only, is -- from an administration that is right
now pushing through a massive tax cut for individuals -- a spectacularly
brazen effort to shrink government revenues and the potential scope of
government activity.

There is little chance of business registering an accomplishment as
breathtaking as O'Neill's proposal, at least in the short-run, but the
corporate lobby may well seek a reduction in its tax rate to match the
rate slashes for rich individuals in the Bush plan. And Big Business will
be able to use O'Neill's sentiment to argue that the corporate tax rate
should be progressively driven down, towards zero.

If the big corporations get their way, and manage to attain significant
tax cuts of one kind or another -- and there is plenty of reason to expect
they will -- it will continue a 30-year trend.

Three decades ago, corporations paid about a quarter of all U.S. federal
taxes. Now the corporate share is down to approximately 10 percent.

The nominal tax rate on corporations is 35 percent, but the effective tax
rate on big corporations is approximately 21 percent, according to the
Washington, D.C.-based Citizens for Tax Justice (CTJ).

A 2000 CTJ study of the 1998 income tax payments of 250 of the largest
corporations determined that two dozen had negative federal income tax
payments --meaning the received rebate checks from the U.S. Treasury.

Led by General Electric, which finagled just under $7 billion in tax
breaks in 1998, at least 25 corporations, including Ford, First Union,
AT&T, Bell Atlantic, Merck, Microsoft, Bristol Myers-Squibb and Exxon --
exploited tax loopholes to gain at least $1 billion in tax breaks,
according to CTJ. (Someone should ask Paul O'Neill: Did these corporations
offer lower prices to consumers?)

Key corporate tax escapes include complicated financial transactions and
transfer pricing which enable corporations to claim earnings outside of
the United States, and in lower-tax jurisdictions; accelerated
depreciation schedules for corporate investments; tax rules that enable
companies to claim stock options as an expense, even though the options
are issued at no cost to the company; and targeted tax provisions that
confer benefits on specific industries.

Politically, it should be harder to push through significant corporate tax
cuts than the tax reductions for individuals. There is little doubt that
public confusion about who will benefit from the Bush plan, and how much,
has been key to enabling its passage. O'Neill's dissembling
notwithstanding, average people are less likely to be under the illusion
that corporate tax cuts will put money in their pocketbooks.

On the other hand, from the corporate point of view, almost anything and
everything seems possible in today's Washington.


Russell Mokhiber is editor of the Washington, D.C.-based Corporate Crime
Reporter. Robert Weissman is editor of the Washington, D.C.-based
Multinational Monitor. They are co-authors of Corporate Predators: The
Hunt for MegaProfits and the Attack on Democracy (Monroe, Maine: Common
Courage Press, 1999).

(c) Russell Mokhiber and Robert Weissman