NCPA - National Center for Policy Analysis

Foreign Corporations Aren't Freeloaders

April 28, 1999

The U.S. General Accounting Office (GAO) recently released a study of taxes paid by foreign-controlled corporations (FCCs) that showed many large FCCs are paying little, if any, federal taxes. Although a majority of FCCs paid no federal income taxes in 1995, the last year for which there is data, neither did a majority of U.S.-controlled corporations (USCCs). Furthermore, taxes paid by FCCs have been rising sharply in recent years.

  • Among large corporations, the percentage of FCCs paying no federal taxes was actually less than those of USCCs, 29.4 percent of the former and 31.5 percent of the latter.
  • Among financial services companies the gap was even larger, with 53.4 percent of USCCs paying no federal taxes compared with just 34.3 percent of FCCs.
  • In 1995, FCCs paid $13.2 billion in federal income taxes, more than twice the $6.1 billion paid in 1991.
  • Taxes paid by FCCs to state and local governments are also large and growing -- $22 billion in 1995, up from $16.9 billion in 1990.

Had the GAO taken account of state and local taxes, not just federal taxes, the percentage of corporations paying no taxes, both FCCs and USCCs, would probably have fallen to zero.

According to the Organization for International Investment, FCCs invested $73 billion in the U.S. in 1995, accounting for 10 percent of all domestic investment. They employed 4.9 million Americans at wages averaging 26 percent more than those for all private sector workers. FCCs also aided the trade balance by exporting $137 billion in merchandise in 1995, 23 percent of all U.S. exports.

The reality is that FCCs contribute a great deal to the U.S., including taxes at all levels of government.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, April 28, 1999.


Browse more articles on Economic Issues