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Corporate Taxes: Going, Going . . .

Sunday, December 26, 2004; Page F04

Given the remarkable plunge in corporate tax receipts since 2000, Congress might have logically responded this past year by closing loopholes, attacking tax shelters and raising business taxes.

Instead, Congress opted to pass the most sweeping corporate tax law in nearly 20 years, a measure with tax breaks worth $143 billion over 10 years, benefiting restaurant owners and Hollywood producers; makers of bows, arrows and sonar fish finders; NASCAR track owners; even importers of Chinese ceiling fans.

Between the years 2000 and 2003, corporate tax revenue went from $207.3 billion to $131.8 billion, a three-year skid that encompassed not only a recession but also a recovery, both in economic growth and corporate profits. By 2003, corporate tax receipts, relative to the size of the economy, had sunk to a level not seen since 1983 and, before that, the Great Depression.

In an analysis of taxes paid by 275 of the largest U.S. corporations, the liberal watchdog group Citizens for Tax Justice found that effective corporate tax rates have fallen by 20 percent since 2001, even as pretax profits jumped 26 percent. Between 2001 and 2003, the 275 companies paid taxes totaling 18.4 percent on their total profits, about half the 35 percent corporate income tax rate. Of the 275, 82 either paid no taxes or received large refunds in at least one of the past three years.

The obituary on corporate taxes may be premature. In the fiscal year that ended Sept. 30, business taxes rebounded smartly, to $189 billion. That's still lower than the level in 2000, but it beat this summer's White House projections by $8 billion.

But the turnaround may be temporary. The White House and congressional Republicans may allow corporations to deduct the full amount of any business investment as part of a broad overhaul of the tax code. They are also considering a radical simplification of the way the government taxes profits on overseas ventures: Just stop taxing them.

-- Jonathan Weisman


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