Business tax cuts and proliferating shelters pushed the effective tax rate of 275 large U.S. corporations down by 20 percent since 2001, even as their pretax profits jumped 26 percent, according to a new analysis by Citizens for Tax Justice, a liberal tax watchdog group. Dozens of companies in the sample paid no taxes.
The study attempts to explain a sharp falloff in corporate tax receipts, which are at their lowest level in 20 years compared with the size of the economy, and which continued falling even as the economy rebounded in 2002 and 2003, according to the Congressional Budget Office.
But in targeting its analysis to the years President Bush has been in office, the group coupled its study with sharply partisan criticism of the administration's economic policies. The study focuses on the ways in which corporations can shelter their profits from taxes, an issue that predates Bush but which CTJ says has been increasing under the current administration.
Officials from several of the companies included in the study disputed the group's conclusions, and the Treasury Department blames recession and slow recovery for declining payments.
"The administration has aggressively pursued economic policies to get the economy back on track," said Treasury spokeswoman Tara Bradshaw.
The 275 companies reported almost $1.1 trillion in profit to their shareholders over the past three years, according to the group's analysis, which examined the Securities and Exchange Commission records of Fortune 500 companies that made money during that period.
The just over $200 billion that the companies paid to the Internal Revenue Service, the analysis said, yielded an effective tax rate of 18.4 percent on their total profit -- about half of the 35 percent corporate income tax rate. Over the three years, the effective rate dropped from 21.4 percent in 2001 to an average of 17.2 percent in 2002 and 2003.
The study did not contend that the companies broke any laws. But it noted that by taking advantage of new tax breaks for business investment, rising tax write-offs for employee stock options and a plethora of tax credits, the companies were able to shelter about half of their profits from taxation.
Citizens for Tax Justice is widely recognized as liberal-leaning, but its periodic corporate tax reports have proved influential in the past. One such analysis helped launch the tax reform movement of the 1980s.
Analysts for the organization said that the study released yesterday reflects broader trends in corporate taxation. That is unclear, however. The Congressional Research Service concluded in a recent study, for example, that the effective tax rate for all corporations was 24.6 percent -- substantially higher than the sample analyzed by CTJ.