60% of U.S. firms escaped taxes during boom

WALL STREET JOURNAL

WASHINGTON - More than 60 percent of U.S. corporations didn’t pay any
federal taxes for 1996 through 2000, years when the economy boomed and
corporate profits soared, the investigative arm of Congress reported.

The disclosures from the General Accounting Office are certain to fuel
the debate over corporate tax payments in the presidential campaign.
Corporate tax receipts have shrunk markedly as a share of overall
federal revenue in recent years, and were particularly depressed when
the economy soured. By 2003, they had fallen to just 7.4 percent of
overall federal receipts, the lowest rate since 1983, and the
second-lowest rate since 1934, federal budget officials say.

The GAO analysis of Internal Revenue Service data comes as tax avoidance
by both U.S. and foreign companies also is drawing increased scrutiny
from the IRS and Congress. But more so than similar previous reports,
the analysis suggests that dodging taxes, both legally and otherwise,
has become deeply rooted in U.S. corporate culture. The analysis found
that even more foreign-owned companies doing business in the United
States — about 70 percent of them — reported that they didn’t owe any
U.S. federal taxes during the late 1990s.

"Too many corporations are finagling ways to dodge paying Uncle Sam,
despite the benefits they receive from this country," said Sen. Carl
Levin, D., Mich., who requested the study along with Sen. Byron Dorgan,
D., N.D. "Thwarting corporate tax dodgers will take tax reform and
stronger enforcement." A 1999 GAO study on corporate tax payments
reached similar results.

The latest report has given new ammunition to the campaign of Democratic
presidential challenger Sen. John Kerry, who has criticized President
Bush for failing to crack down on corporate tax dodgers. Kerry wants to
end corporations’ ability to park their overseas earnings in tax havens,
in order to discourage outsourcing; in return, he is proposing a lower
U.S. corporate tax rate.

To be sure, Kerry has supported some of the most recent big corporate
breaks, such as those contained in a 2002 economic stimulus bill. And
the latest GAO report focused on tax avoidance that took place entirely
during the Clinton years.

A spokesman for the Bush campaign said Kerry’s own campaign has
acknowledged its plan wouldn’t stop outsourcing. "Sen. Kerry has a habit
of putting forth political statements that wouldn’t achieve the policy
goals that he says they would," Bush spokesman Scott Stanzel said.

An IRS spokesman noted that the agency recently has stepped up
enforcement activity for business taxpayers. The Bush administration’s
2005 budget request includes a 10 percent increase for IRS enforcement,
mostly to go after more corporations.

The GAO report also may further fuel a drive in Congress to crack down
on a variety of corporate tax-dodging strategies, such as a recently
discovered leasing maneuver that allows companies to buy up depreciation
rights to public transit lines, highways and water systems. Senate
tax-committee leaders have released a list of companies involved that
includes a number of well-known financial firms, such as First Union
Commercial Corp., a unit of Wachovia Corp. Wachovia has defended its
involvement, saying the transactions are legal.

The new report also could spur further IRS action against tax-shelter
peddlers and their customers. The IRS is closely examining tax-shelter
deals sold by accounting firms such as KPMG LLP, for example. That firm
recently experienced a management shake-up in response to the inquiry.

Conservatives depicted the GAO report as an argument for tax-code
overhaul for both corporations and individuals. Dan Mitchell, a fellow
at the Heritage Foundation, a conservative think tank, also noted in
corporations’ defense that they have an obligation to shareholders to
pay as little tax as they legally can.

The basic federal corporate-tax rate for big corporations is 35 percent.
But the federal tax code also offers many credits and loopholes that
allow many companies to pay far less than that.