Saturday, March 12, 2011

Many Corporations Oppose Corporate Tax Cuts

Despite a corporate tax rate of 35 percent, U.S. corporations paid an average tax rate of only 26.5 percent the year before the recession. But even this statistic overstates the U.S. corporate tax burden for many. For example, the Wall Street Journal recently reported that Whirlpool Corporation paid no federal income taxes on its $18 billion in sales and $619 million in earnings for 2010.

They accomplished this feat by taking advantage of production tax credits ranging from $75 per dishwasher to $200 per refrigerator. Thus, Whirlpool was able to stockpile more than $500 billion in tax credits for making “energy efficient” appliances. Not only did Whirlpool pay no taxes last year, they will carry unused tax credits forward so that they will pay no taxes until many of the overly generous politicians have “left the scene of the crime.”

To take additional advantage of U.S. taxpayers and investors, Whirlpool has placed the unused portion of the tax credit on their financial statements as an asset. Thus, any cut in corporate income tax rates will result in a reduction of Whirlpool’s assets and net worth since it will lower the value of the tax credit. But Whirlpool is hardly alone in this entirely legal activity. For 2010, GE paid a corporate tax rate of less than 9 percent on its $12.2 billion in profits after it took advantage of federal tax credits designed to promote laudable and potentially dubious social goals. IRS data indicate that 493 U.S. corporations with more than $100 million of 2007 profits claimed an average tax credit of more than $148 million.

To eliminate this unequal and inefficient tax treatment, Congress should cut corporate tax rates for all, and eliminate the credits for the few. However, I am not optimistic that this will be achieved since favored corporations, lobbyists and politicians derive significant benefits from the status quo.
Ernie Goss.

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