Perspective On Corporations & Taxes
by Bruce Bartlett, Robert McIntyre
April 12, 2004
DAVID HAFFENREFFER, CNNfn ANCHOR, MONEY & MARKETS : A Syracuse University
study is raising some new questions about whether companies are getting off too easy around tax time. The university's government watchdog group said the IRS is increasing its audit of individual taxpayers while cutting back on its audits of businesses. It says only 29 percent of large corporations were audited last year compared to almost 35 percent in 1999. Meanwhile, a recent government report says more than 60 percent of U.S. corporations on average failed to pay any Federal tax from 1996 to 2000.
So with tax day looming on Thursday, the question remains, are U.S. corporations paying their fair share and what exactly would be their fair share? Joining us now with their thoughts on all this is Robert McIntyre, director of the Citizens for Tax Justice, and Bruce Bartlett, senior fellow at the National Center for Policy Analysis. Gentlemen, welcome to the program.
ROBERT MCINTYRE, CITIZENS FOR TAX JUSTICE: Thank you.
BRUCE BARTLETT: CENTER FOR POLI8CY ANALYSIS: Thank you/
HAFFENREFFER: Robert, let's start with you. This is a report that says that -- that second report that we referenced here, that corporate income tax makes up just 7 percent of the -- is that the revenues going into the government?
McINTYRE: Yes. The corporation tax now only pays for about 7 percent of the Federal government. That's down from about a quarter in the '60s and from about 15 percent in the '70s. So it's been declining, but recently, very quickly declining and we now have just about the lowest corporate taxes in the developed world.
HAFFENREFFER: Does this have something to do with the current sitting president?
McINTYRE: He did have a big corporate tax cut enacted in 2002 and 2003 and they haven't been enforcing the law to crack down on all these offshore tax shelters. The combination has been really bad for the corporate income tax and bad for the government's finances.
HAFFENREFFER: Bruce Bartlett, this study goes all the way back to 1996, obviously, a previous administration as well. As you look at these numbers, your thoughts.
BARTLETT : One of the things to keep in mind -- I looked up the raw IRS data today, and something like 45 percent of all corporations report no income. So, obviously, if you have no income, you're not going to pay any taxes and 60 percent of all corporations have assets of less than $100,000. So it's really not very much of a surprise that a majority of corporations pay no taxes. 40 percent of all individuals pay no taxes. So it seems to me that this is really much ado about nothing.
HAFFENREFFER: Certainly, that headline number, though, about roughly 60 percent of U.S.-based corporations in that time period, that four-year period, paying no taxes at all is an attention grabber. Do you agree, Bruce?
BARTLETT : No question about it. But keep in mind, we have something called the alternative minimum tax that was enacted specifically to keep companies from being able to shelter their income and to make sure that they pay some taxes. And it's hard to see what we can do more beyond that unless we want to be like the dean in "Animal House" and have double secret AMT to really make companies pay even more taxes. Personally, I think that would be a bad idea. Corporations just collect taxes that are, in fact, paid by individuals. And it's really -- most tax theorists suggest that we really shouldn't have a corporate income tax at all.
HAFFENREFFER: I guess the theory here -- Robert, we can go to you for this, is that if you make the tax landscape beneficial for corporations, they're more likely to hire. Is that right?
McINTYRE: Not when you make it beneficial for them by giving them tax breaks for moving jobs overseas, which is what we do now, or not when you give them tax breaks for just shifting their profits to the Cayman Islands . No, that doesn't help anything with jobs and that's what's going on here is that our companies have found ways around the system, and we need to get people in office who will say, wait a minute. We got to enforce the law. We got to crack down on the shelters. Let's make these corporate profits pay taxes, not just wages.
HAFFENREFFER: You say enforce the law. Is it your sense that most of these companies are breaking the law, or are they just using legal loopholes that currently exist?
McINTYRE: Some of them are using legal loopholes. An awful lot of them are using loopholes they made up out of whole cloth, and I think a lot of them are illegal. But some of them may need legislation to fix it. We need to do that, because it doesn't make any sense that a company by just some creative bookkeeping can say I'm not going to pay any taxes on my profits, and some honest company still has to pay it.
HAFFENREFFER: On the jobs front, Bruce, we heard Senator Kerry talking about cutting some taxes for corporations overseas in the hopes of providing some incentive for them to have jobs here in the U.S. and what exactly he would do with that money. As you heard that idea, does it wash with you? How does it sit?
BARTLETT : Well, actually, what Senator Kerry proposed was increasing taxes on companies that do international business, and he would use that money to cut the corporate income tax rate, which I'm all in favor of. We have one of the highest statutory corporate tax rates in the industrialized world. So it's hardly a surprise that companies, just as individuals do, go out of their way to try to minimize their tax burden. And I think it really makes more sense to try to do, like Senator Kerry proposes, which is to cut the corporate tax rate than to try to enforce some of these tax laws which, frankly, don't really make a whole lot of sense.
HAFFENREFFER: And, Robert, I wanted to get your thoughts on this report about the number of inquiries at IRS is doing for individuals versus corporations at this point. It seems to be declining, the number of audits that the IRS is doing on corporations. Your thoughts on what might be the rationale or reasoning behind that?
McINTYRE: The big problem is they're not funding the Internal Revenue Service and so there's way fewer agents to go after not just the big corporations but the wealthy people. The result is that tax shelters are flourishing, and the honest people who earn their wages and have to report every penny pay their taxes. Those who have creative accountants, just don't get caught.
HAFFENREFFER: We'll have to leave it there, gentlemen. Thank you very much.
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