NCPA - National Center for Policy Analysis

Companies Search For Ways To Avoid Taxes Legally

August 4, 1999

A number of firms are finding legal ways to reduce the amount of pretax income they report to the Internal Revenue Service, some analysts report. They establish financial subsidiaries in tax havens, use complex tax shelters, or shift profits to low-tax countries by manipulating prices when doing business with their own overseas branches.

  • The top federal income tax rate for corporations is 35 percent.
  • Out of 2.3 million U.S. corporations, more than half paid no federal income tax between 1989 and 1995, according to General Accounting Office estimates.
  • While many of these were mom-and-pop operations, four of every 10 companies with more than $250 million in assets or $50 million in gross receipts paid less than $100,000 to the federal government in 1995.
  • Annual federal revenue from personal income taxes is up 60 percent over the past six years, while revenue from corporate income taxes increased just 30 percent.

According to the latest Economic Report of the President, companies paid 31 percent of their profits to the federal government in 1998 -- compared to 41 percent in 1989.

Tax experts say that doesn't mean businesses are doing anything illegal. They are simply using every bit of flexibility in the tax code to maximize their write-offs and minimize their taxable income.

Source: Michael M. Phillips, "As Congress Ponders New Tax Breaks, Firms Already Find Plenty," Wall Street Journal, August 4, 1999.


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