Most U.S. citizens understand that through a variety of loopholes, U.S. based corporations have reduced their U.S corporate tax burdens tremendously over the last forty years. With a new study just published, we can gauge, comparatively, which specific industry categories are the worst offenders. This article documents this via rough extrapolation and provides a bar chart showing tax payments by industry category in 2009, and what they would have paid with a 25% corporate income tax, no loopholes. First the graph, then the explanation, and finally, the data table. For each industry, the bottom bar shows what they paid. The top bar shows how much more they would have paid at 25%:
This is strictly back-of-envelope math, because I'm comparing an incomplete data set (280 big companies) to a complete one (U.S. GDP), and a number of important classifications (such as defense, pharmaceuticals) in the CTJ table don't match one-to-one with the BEA classifications. But the results are eye opening. The bar for the fiancial sector is the part that caught my eye. The international nature of that industry enables the financial sector to move profits to other parts of the world easily, much of their profit is converted to personal salaries and bonuses, and their contributions have enabled them to write tax law with ease. The three other industry accounts mentioned in the Joe Romm article cited below, utilities and telecom, also appear as egregious offenders.
Now for the explanation and the data.
I read Joe Romm's very good article, "Over Half of All U.S. Tax Subsidies Go to Four Industries. Guess Which Ones?" the other week with great interest. The tables he reproduced, from Citizens for Tax Justice and the Institute on Taxation and Economic Policy's excellent study grouped 280 large corporations by industry, and reported their profit margins vs. what they paid in U.S. corporate taxes. Grouping these companies provided data points showing the tax rate per industry category. Since we know the sum of corporate taxes paid ($138 billion in 2009) as reported by the CBO, it enabled us to use the findings of the study to extrapolate tax payments by industry category for the entire U.S. gross domestic product. Note that the total payments of these 280 corporations was $71 billion for that year -- so the CTJ data is a large sample.
For our analysis, we started by comparing CTJ's industry categorizations to the Bureau of Economic Analysis' numbers on Gross-Domestic-Product-by-Industry Accounts. The BEA table gives us the actual production by category, so we could link the tax numbers to GDP numbers.
Knowing CTJ's total tax payment by industry category, we could then calculate the percentage that payment represented for all industries. For example, if all companies in the study paid a total $71.8 billion in taxes, and those in the telecommunications category paid $3.9 billion, we know that category paid 5.4% of all taxes paid in the study.
Because we know the total corporate tax receipts for that year from the CBO, we could then take that percentage, and looking at the BEA's numbers for that category, guess that all telecom companies, including the ones not studied, paid 5.4% of the $138 billion taxes as reported by the CBO. Undoubtedly not an exact guess, but if all we want is the comparative view by industry category, it's good enough.
Having a number for total tax paid for the category, and having CTJ's tax percentage for the categories in the 280 company study, we could calculate profit for all U.S. companies in the category. Again, other companies not in the CTJ report will differ, but the relations between categories are what we're after.
To calculate the shortfalls, I chose a straight corporate 25% tax rate for every company, for simplicity sake; in reality, had all loopholes been closed, many companies, particularly these 280, would have paid 35%.
The conclusion, once we arrived at the profit amounts for each category, then taxing those by a flat 25%, showed that corporate taxes would have increased by 52% in 2009, from $138 billion to $210 billion with such a flat tax (or had the effective tax rate for all corporations been 25%). Even assuming that not every company would have done as well as the 280 selected for the CTJ survey, it would still be a big chunk of change. Enough to pay for a war or two. Aside: yes, I advocate raising corporate taxes by 50%!.
I do want to point out a dramatic graph at the Tax Policy Center of the Brookings Institution, showing Corporate Income Tax as a Share of GDP, 1946-2009. It shows that current corporate tax receipts, as expressed as a percentage of GDP are one sixth of that of the 1950's.
Final note on this graph: BEA uses wholesale and retail trade as a sort of catchall; that's why that category is so big. I suspect (but haven't looked into) that much of Pharmaceuticals & medical products, for example, which CTJ broke out as a separate category, is lumped in there.
Please visit scribillare.com to view the actual data.