Regarding the Nov. 3 news story “Many firms found to avert taxes”:
Those who have filed an individual tax return know one thing: The U.S. tax code is complicated. It is more complicated when a corporate tax return is filed.
Changes to the tax code are often driven by policy objectives. The mortgage interest deduction reduces taxes a homeowner pays and is designed to encourage homeownership.
During this economic downturn, policy objectives were developed to encourage economic investment and create jobs. One action was to allow greater accelerated depreciation on new capital investments. Policymakers wanted to give companies incentives to invest and create jobs. In support of this objective, a company could deduct 50 percent of an investment in year one, lowering its federal taxable income and reducing the amount of taxes owed. These policy objectives are economic incentives, not “loopholes.”
Over the three years noted in the article, Pepco Holdings made approximately $2 billion worth of capital investments inits infrastructure, which improved reliability. More than 50 percent was allowable as a current deduction against taxable income. By contrast, the company reported financial pre-tax earnings of approximately $690 million over this period. The accelerated depreciation of Pepco Holdings’ capital investments and significant contributions the company made to the employee pension plan are the primary reasons for the negative tax rate computed in the study.
While accelerated depreciation reduced Pepco’s federal income taxes, the company paid many other taxes. Between 2008 and 2010, it paid approximately $1.2 billion in real estate taxes, payroll taxes, personal property taxes, delivery taxes, use taxes and gross receipts tax. We are committed to supporting and investing in the communities we serve, and that includes paying the taxes we owe in accordance with all rules and regulations.
Anthony Kamerick, Washington
The writer is chief financial officer of Pepco Holdings.