Many Firms Avoided Taxes Even as Profits Soared in Boom

SmartMoney.com

http://www.smartmoney.com/bn/ON/index.cfm?story=ON-20040406-000047-0158

WASHINGTON — More than 60% of U.S. corporations didn’t
pay any federal taxes for 1996 through 2000, years when
the economy boomed and corporate profits soared,
Tuesday’s Wall Street Journal reported, citing the
investigative arm of Congress.

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% 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 U.S. —
about 70% of them — reported that they didn’t owe any
U.S. federal taxes during the late 1990s.

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

Despite the rising rate of tax avoidance among
corporations, collections from the federal corporate
income tax rose to more than $200 billion in 2000, from
$171 billion in 1996. But over the next three years
they fell each year, reaching $131.8 billion in 2003 —
the lowest annual total since 1993. They are projected
to reach $168.7 billion this year.

Wall Street Journal Staff Reporters John D. McKinnon
and Rob Wells contributed to this article.