According to a study recently completed by the nonpartisan Pennsylvania Budget and Policy Center – a statewide policy research project that provides independent, credible analysis on state tax, budget, and related policy matters – showing that nearly 50 percent of the Fortune 500 companies it analyzed failed to pay federal corporate income tax at least once in the past five years.
In the five-year study – The Sorry State of Corporate Taxes: What Fortune 500 Firms Pay (or Don’t Pay) in the USA and What They Pay Abroad — 2008–2012 – the PBPC reviewed 288 of the F/500 companies, and found that 111 of them – including six in Pennsylvania – failed to pay the tax on at least one occasion in the past half decade.
According to the PBPC, six of the 16 Pennsylvania-based Fortune 500 corporations studied paid federal income taxes of zero or less in at least one year between 2008 and 2012: Allentown-based PPL (3 years); Pittsburgh-based Allegheny Technologies and PNC Financial Services Group (2 years); and King of Prussia-based UGI, Pittsburgh-based H.J. Heinz, and Allentown-based Air Products & Chemical (1 year).
Among the Pennsylvania companies, PPL and PNC paid the lowest effective federal tax rates on income over the five-year period – 3 percent and 3.9 percent, respectively. Paying rates much closer to the statutory corporate federal income tax rate of 35 percent were Hershey (31.6 percent) and King of Prussia-based Universal Health Services (31.1 percent).
“Both individual taxpayers and critical public services are put at a disadvantage when profitable Fortune 500 companies avoid paying federal income taxes,” said Sharon Ward, Director of the Pennsylvania Budget and Policy Center. “This study also shows that there are companies that deserve credit for paying closer to their fair share.”
Such a report could be bombshell material in the upcoming Pennsylvania gubernatorial race. Governor Tom Corbett has come under intensifying pressure, mostly from Pennsylvania Democrats on both sides of the aisle, for the tax breaks Corbett has extended to the business sector while slashing education funding, not withstanding the roughly $30 million in additional education funding Corbett inserted in his Fiscal Year 2014-15 budget proposal.
The study examines five years’ worth of data on federal income taxes paid by 288 corporations — every Fortune 500 company that was profitable each year of the study and provided sufficient, reliable information in their financial reports to allow calculation of their effective U.S. and foreign tax rates. Although the statutory corporate federal income tax rate is 35 percent, these corporations paid an average effective rate of just 19.4 percent over the past five years, barely more than half the official rate.
Over the period, the six Pennsylvania-based corporations that avoided taxes in at least one of the five years reviewed paid overall effective tax rates of 15 percent or less: PPL (3 percent), PNC (3.9 percent), Air Products and Chemicals (9.5 percent), Allegheny Technologies (9.5 percent), H.J. Heinz (13.2 percent), and UGI (15 percent).
Six other Pennsylvania-based Fortune 500 corporations paid effective federal income tax rates of 20 percent or more: Hershey (31.6 percent), Universal Health Services (31.1 percent), Pittsburgh-based PPG Industries (29.2 percent), Coraopolis-based Dick’s Sporting Goods (27.2 percent), Chesterbrook-based AmerisourceBergen (24 percent), and Philadelphia-based Comcast (24 percent).
“Corporate lobbyists incessantly claim that our corporate tax rate is too high, and that it’s not ‘competitive’ with the rest of the world,” said Robert McIntyre, Director of Citizens for Tax Justice and the report’s lead author. “Our new report shows that both of these claims are false. Most of the biggest companies aren’t paying anywhere near 35 percent of their profits in taxes and far too many aren’t paying U.S. taxes at all. Most multinationals are paying lower tax rates here in the United States than they pay on their foreign operations.”
While the PBPC’s findings are grim, the researchers did include several recommendations on what could be done both at the federal and state level to confront the issue. How Congress or the Pennsylvania legislature responds might be another matter entirely, especially in Pennsylvania, where it is an election year for both governor and state representative.
Still, the reports suggests:
· Congress should repeal the rule allowing American multinational corporations to indefinitely “defer” their U.S. taxes on their offshore profits. This reform would effectively remove the tax incentive to shift profits and jobs overseas.
· Limit the ability of tech and other companies to use executive stock options to reduce their taxes by generating phantom “costs” these companies never actually incur.
· Having allowed “bonus depreciation” to expire at the end of 2013, Congress could take the next step and repeal the rest of accelerated depreciation, too.
· Reinstate a strong corporate Alternative Minimum Tax that really does the job it was originally designed to do.
· Require more complete and transparent geography-specific public disclosure of corporate income and tax payments than the Securities and Exchange Commission’s regulations currently mandate.
“The good news is that the corporate income tax can be repaired. The parade of industry-specific and even company-specific tax breaks that lard the corporate tax can — and should — be repealed. This includes tax giveaways as narrow as the NASCAR depreciation tax break and as broad as the manufacturing deduction,” read a portion of the PBPC report. “High-profile multinational corporations that have shifted hundreds of billions of their U.S. income into tax havens for tax purposes, without actually engaging in any meaningful activity in those tiny countries, will stop doing so if Congress acts to end indefinite deferral of U.S. taxes on their offshore profits.
“As Congress considers these steps, lawmakers and the Securities and Exchange Commission should take steps to ensure that they, and the public, have access to basic information about how much big companies are paying in taxes and which tax breaks they’re claiming.”