Under the federal tax code, corporations are supposed to pay 35 percent of their profits in taxes. But the study found many of the companies used legal tax breaks that allowed them to pay lower rates than ordinary Americans.
The report, compiled by the nonprofit groups Citizens for Tax Justice and the Institute on Taxation and Economic Policy, was published as corporations and White House officials have pushed for a reform of the corporate tax code. Powerful business lobbying groups, including the Business Roundtable, have said they want lawmakers to lower the overall 35 percent tax rate in exchange for closing some loopholes. These lobbyists frequently cite this rate when arguing that U.S. firms pay more than their foreign competitors.
Some corporations pushed back at the report, saying it relied on fuzzy accounting.
The “findings in this and other recent reports have been more politically motivated than truthful,” said Robert Varettoni, a spokesman for Verizon, which was cited in the report for having a negative 3 percent rate from 2008 through 2010. “The fact is, Verizon fully complies with all tax laws and pays its fair share of taxes.”
The report said that 71 of the companies paid an effective rate of more than 30 percent over the three years. But roughly an equal number paid less than 10 percent.
The range between industries is wide. Retail and health-care companies, in particular, tend to pay more in taxes. These firms usually have less intellectual property that can be shifted overseas to take advantage of other countries’ lower tax rates. The report found they paid an effective rate of 30 percent over the three years.
By contrast, tech companies and manufacturers, including General Electric, paid far less. GE, for instance, paid a rate of minus 45 percent, the report said.
“The report is inaccurate and distorted,” the company said in a statement. “GE paid billions of dollars in taxes in the United States over the last decade, and we expect our overall tax rate will be approximately 30 percent in 2011. We believe the U.S. tax system needs to be reformed to close all loopholes, to lower the corporate rate and to provide a territorial system like every other major country in the world.”
The report also noted that defense contractors paid notably low rates, averaging about 15 percent.
Gas and electric utilities also tend to pay less. Last year, Pepco Holdings made $229 million in pretax profits, the study said, and claimed $270 million in federal tax credits, making the company’s tax rate about minus 118 percent.
Bob McIntyre, a co-author of the study and director of the Center for Tax Justice, said it was hard to tell from Pepco’s annual financial filings exactly how it managed to lower its taxes by so much. But it appeared that much of the savings came from “accelerated depreciation,” a tax rule that allows companies to write off their capital investments faster than they wear out. Companies then deduct from their taxable income the falling value of these investments.
Pepco, which has raised the ire of local residents over sustained power outages, did not quibble with any of the specific numbers from the report. But the company said in a statement that it “pays all its required taxes . . . in all the taxing jurisdictions within which it operates. . . . [Pepco] takes seriously its responsibility to adhere to legal tax requirements and its fiduciary responsibility to its customers and shareholders to minimize costs where possible.”
The report said that many other companies took advantage of tax breaks that favor certain industries, including drilling for oil and gas, making video games, building NASCAR racetracks, producing ethanol, and making movies.
Combined, the companies examined earned almost $1.4 trillion in pretax profits, according to the study. As a group, however, the firms claimed $223 billion in subsidies, with Wells Fargo, AT&T and Verizon topping the list.
“Wells Fargo is a responsible corporate citizen,” said a company spokesperson, “and we believe we have fulfilled all tax obligations to federal, state and local communities where we serve our customers.”
AT&T did not respond to requests for comment.
“We were way overdue for corporate tax reform a decade ago at the least, and nothing has happened in Congress,” McIntyre said. He said the report “shows how the power of these companies has grown over time.”