Friday, April 15, 2011

Tale of two tax rates

The following came via either Mark Thoma or Felix Salmon. I don't know which but I don't see that it matters. Both write blogs that you should check on a daily basis and both hold David Cay Johnston in high esteem (Thoma cites him frequently and Salmon calls him "the dean of tax reporters").

Here's Johnston on corporate taxes:

Just as the individual income tax falls more heavily on the affluent than the super-rich, so too does the corporate income tax. The giants of American business pay at lower effective cash rates than much smaller corporations.

That regressivity is an important aspect of the general trend in U.S. tax policy, which at both the federal and state levels is focused on pushing burdens down the income ladder.

But the broader issue has gotten zero attention in the hubbub that began March 24 with The New York Times exposé on General Electric Co.'s income taxes.1

GE itself has said it paid no tax federal income tax last year, but complains it was maligned -- although it has been unable to point to a single factual error in the Times. We'll get to the dispute over how GE was treated, its response, and its statement that it is "scrupulous" about its worldwide tax compliance. But first let's look at the distribution of corporate income taxes, starting with a comparison of two of the best-known brand names in the country: GE and the New York Times Co.

Warning: You may want to take a deep breath right now because the numbers that follow may leave you gasping for air.

GE made a nearly $194 billion profit over the last 10 years and paid nearly $23 billion in income taxes. That's a real tax rate of 11.8 percent, about one-third the statutory rate of 35 percent.

The New York Times Co. made less than $2 billion in profit over the same 10 years and paid almost $1.4 billion in income taxes. That's a real tax rate of 71 percent, paid in cold, hard cash.

So the newspaper company that exposed GE paid more than twice the posted U.S. corporate rate, and its real tax rate was more than six times GE's real tax rate.

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