Tuesday, April 06, 2004

Corporate Tax Evaders

CNN has this article reporting that more than 60% of U.S. Corporations did not pay any federal taxes from 1996 through 2000, according to a GAO report released April 2 (the report may be accessed here). The report studied the tax liabilities of both foreign and domestic corporations presumably to determine whether foreign corporations were evading their tax liabilities. The two most interesting factoids from the report: (1) fully 94% of all corporations reported tax liabilities of less than 5% of their total income, even though the federal tax rate is 35%; (2) there is nothing new about these numbers--corporations have long taken advantage of tax loopholes to escape paying.

In doing some quick research on the topic, I came across Warren Buffett's annual letter to his shareholders. In it, he has this to say on the topic:

Corporate income taxes in fiscal 2003 accounted for 7.4% of all federal tax receipts, down from a post-war peak of 32% in 1952. With one exception (1983), last year’s percentage is the lowest recorded since data was first published in 1934.

Even so, tax breaks for corporations (and their investors, particularly large ones) were a major part of the Administration’s 2002 and 2003 initiatives. If class warfare is being waged in America, my class is clearly winning. Today, many large corporations – run by CEOs whose fiddle-playing talents make your Chairman look like he is all thumbs – pay nothing close to the stated federal tax rate of 35%.

In 1985, Berkshire paid $132 million in federal income taxes, and all corporations paid $61 billion. The comparable amounts in 1995 were $286 million and $157 billion respectively. And, as mentioned, we will pay about $3.3 billion for 2003, a year when all corporations paid $132 billion. We hope our taxes continue to rise in the future – it will mean we are prospering – but we also hope that the rest of Corporate America antes up along with us.

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