“Here’s the deal: If you spent $3 on your coffee this morning, that’s more than what 55 major corporations paid in taxes in recent years.”© Evan Vucci/AP (AP Photo/Evan Vucci)
— President Biden, in a tweet
, Oct. 20
The president is not known for a snappy Twitter account but he threw some snark at 55 big companies as he presses for an increase in the corporate tax to fund his proposed expansion of social programs.
This is one of Biden’s favorite statistics. According to factba.se, which tracks his statements, the president has used it in speeches or interviews 10 times since April. Normally he is careful to refer to “federal income taxes” so the tweet is little off by referring just to “taxes.” The companies in question say they pay billions of dollars in state, local and property taxes. The tweet also says “recent years” when in fact the number refers to just one year — 2020.
Let’s dig into this statistic. It’s not necessarily wrong but there are some limitations.
The number comes from a report issued in April by the left-leaning Institute on Taxation and Economic Policy (ITEP). The group studied the corporate filings with the Securities and Exchange Commission of companies listed in the Fortune 500, zeroing in on companies that posted profits.
In 2020, ITEP found, 55 profitable companies indicated that they paid no federal income tax even though they collectively earned almost $40.5 billion in pretax income. ITEP previously had reported that 91 companies paid no federal income tax in 2018, so the situation has improved.
Twenty-six major companies, however, are believed to have paid no federal income taxes in the three years after Congress slashed corporate taxes and added new corporate tax breaks in the 2017 tax bill.
Company tax returns generally are not made public, so ITEP’s numbers are the product of its own research and analysis of public filings.
But it is an imperfect measure. A company’s annual 10-K filing in March generally will only have estimated numbers, as the actual tax return generally is not filed until later in the year. Total tax numbers may be determined from looking at cash flow statements, but there is no guarantee that the calculations reflect the actual tax liability.
Douglas Holtz-Eakin, a former head of the Congressional Budget Office, has faulted the analysis because he says the information in the filings may not reflect what is in the tax returns.
“Financial reports adhere to Generally Accepted Accounting Principles (GAAP) as set forth by the Financial Accounting Standards Board,” he wrote when the latest report was released. “GAAP or ‘book’ income departs substantially from taxable income on returns …. All else equal, for a firm making an investment, reported profit will be higher under GAAP accounting than for tax purposes.”
Nevertheless, the notion that 10 to 20 percent of Fortune 500 companies do not pay federal income taxes is consistent with a 2020 report by the nonpartisan Joint Committee of Taxation. The JCT was able to examine the actual tax filings but could not reveal the names of the companies.
In particular, the JCT studied in depth the tax filings of 50 corporations during the 2014-2018 period.
“An average of less than 10 of the selected 50 corporations reported no Federal income tax liability after credits in each year 2014 through 2016,” the JCT reported. “For 2017 and 2018, the average increased to more than 10. Consistent with corporations accelerating deductions into 2017 and delaying income into 2018, tax year 2017 had the most corporations reporting no tax liability. In several cases, the corporation did not report tax liability in at least three consecutive tax years during the 2014 to 2018 period.”
In other words, about 20 percent of the 50 corporations reported no tax liability on their tax returns. That mirrors ITEP’s examination of the Fortune 500.
More broadly, the JCT found that “approximately one-third of corporations with assets greater than $1 billion and two-thirds of those with assets less than $1 billion report no federal income tax liability net of credits, in any given year.”
The Washington Post has reported that the IRS’s budget had shrunk so much in recent years that the federal government now examines just half of all large company tax returns — even though companies are increasingly reporting that they are seeking deductions that companies see as unlikely to be approved by authorities because they rely on disputable interpretations of the tax code. Biden had proposed to bolster funds for IRS audits.
The Bottom Line
This “55 corporations” number is probably in the ballpark but readers should be aware that it’s not based on actual tax returns but instead is an estimate of taxes paid based on corporate reports.
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Source : https://www.msn.com/en-us/news/politics/biden-s-favorite-stat-that-55-major-corporations-paid-no-federal-income-tax/ar-AAPM9z21115