LaborTalk: Corporate Tax Rate Sinks

While most Americans are paying more in federal taxes than they did a decade ago because of the booming economy, corporations that raked in record profits are paying far less than they used to.

Taxes paid by corporations on their reported profits to the Internal Revenue Service fell sharply from 26 cents on the dollar in 1990 to 20 cents on the dollar in 1997, according to the latest available figures. Meanwhile, the average tax rate on individuals and families increased to almost 15 cents on every earned dollar, compared with 13 cents in 1990.

Corporations have many ways to reduce their tax burden than does the average taxpayer. Their lawyers are experts in spotting loopholes in the 44,000-page U.S. Tax Code, while their lobbyists are continually pressing lawmakers to create new loopholes. If you add up all of the grants, subsidies, tax credits and allowances that major corporations get (especially if they are big political contributors), the savings to them can be enormous.

Because of their numerous tax-saving schemes, corporations in 1997 paid $60 billion LESS than if they had been required to pay at the 1990 tax rate.

There has been a significant increase in the number and variety of tax shelters that allow corporations and wealthy individuals to shrink their tax bills. "Corporate tax shelters are our No. 1 problem" in enforcing the tax laws, says Treasury Secretary Lawrence H. Summers, "not just because they cost money but because they breed disrespect for our tax system."

Indeed, some multinational corporations with subsidiaries in foreign countries pay little or no taxes at all because they keep their profits overseas. In a few cases profitable companies have had the gall to request--and receive--a rebate from the U.S. Treasury. Last year, the U.S. Tax Court found that the United Parcel Service had devised a long-running scheme to avoid more than $1 billion in taxes.

Corporate tax lawyers are paid handsomely to contrive ingenious methods to save their clients large sums of money. Where their deductions are of questionable legality, their hope is that they will be approved by the I.R.S. without audit. If companies are caught cheating on their tax returns, it's no big deal. They send their lawyers to argue the case with the I.R.S. staff. It may take years before a watered-down settlement is reached.

Corporations have been remarkably successful in depriving the Treasury of countless billions of dollars, while at the same time strongly advocating a federal balanced budget. And if the budget is balanced, who do you think is going to make up the difference?