Largest Corporations Pay Hardly Any Taxes: Time for Reform?

Surprising to some—and unsurprising to many—one in five of the largest profitable U.S. corporations paid absolutely no federal income tax in 2012.[1] Indeed, those corporations paid average federal income tax rates of only a measly 14% from 2008 to 2012.[2] These statistics become even more alarming when all active companies are considered. No less than two-thirds of active companies did not pay any federal income tax each year from 2006 to 2012, and 42 percent of companies with at least $10 million in assets paid no federal income tax in 2012.[3] These reports, which were prepared by the Government Accountability Office at the request of Senator Bernie Sanders, I-VT, shed light on an alarming, yet unsurprising, fact of the U.S.’ income tax system. Now, the more tax-savvy readers may be thinking that various deductions, carry-forward losses, and tax incentives could account for the seemingly low, or nonexistent, tax rates. However, even when carried-forward losses are considered, the largest companies average tax rate increases to only 16.5% from 2008 to 2012.[4]

In light of this information, lawmakers from both political parties agree that the U.S. tax code desperately needs reform. Senator Sanders responded to the report that “[t]here is something profoundly wrong in America when one out of five profitable corporations pay nothing in federal income taxes.”[5] The tax code was overhauled last in 1986.[6] So, how long will we have to wait for this process to begin? House Ways and Means Committee Chair Kevin Brady, R-Texas, shed some light on this question, saying in February that he wanted to work on the international tax code this year to serve as a foundation for a comprehensive tax overhaul in 2017, following the upcoming elections.[7]

With tax reform seemingly a certainty, the question becomes: how, and by how much, do we want to reform the tax code? The U.S. has had an income tax system since its inception in 1909.[8] But, not all analysts, academics, and lawmakers agree that income tax is the best tax system, or the most effective.[9] As tax reform creeps closer, these questions (hopefully) will enter the national dialogue; otherwise, the upcoming tax reform will inevitably fail to equitably and fairly fix the current problems in the U.S. tax system.

–By Tony Nasser, Esq., Barnes Law

Tony Nasser is an attorney with Barnes Law, licensed to practice law in California.

The opinions expressed are those of the author and do not necessarily reflect the views of the firm, its clients, or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] http://www.gao.gov/products/GAO-16-363

[2] Ibid.

[3] Ibid.

[4] http://www.law360.com/tax/articles/784091?nl_pk=5c91248d-6416-44b0-9126-8e2ae415ae92&utm_source=newsletter&utm_medium=email&utm_campaign=tax

[5] Ibid.

[6] Ibid.

[7] Ibid.

[8] https://www.loc.gov/rr/business/hottopic/irs_history.html

[9] See, e.g., Edward J. McCaffery, Fair Not Flat: How to Make the Tax System Better and Simpler (2002).