Welfare Queens

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http://www.eriposte.com/economy/tax/corporate_welfare.htm

 

TAX POLICY - CORPORATE TAXES/WELFARE MYTHS v.

REALITIES

 

 

PERSONAL TAXES CORPORATE TAXES

TAX-N-SPEND GOP OR DEMOCRATS?

 

The Truths behind Corporate Income Taxes and

Corporate Welfare

 

In our companion page, we examined some of the myths

about the poor paying " too little " in taxes, that the

middle class is paying historically high taxes, and

how the rich in this country are also " overtaxed " .

 

For a couple of reasons we should also examine how

America's corporations are faring tax-wise. Firstly,

one of the things we hear is how it would help the

economy and help businesses if we reduce their tax

burden. Second, since complaints from some

Conservatives seem to be are that the poor in America

" live on welfare " and represent a drain on society, it

is instructive to examine how much welfare America's

big corporations get. Our findings are that:

a. Corporate taxes in the United States are

essentially near multi-decade lows.

b. Corporate welfare is astonishing high and

represents ~3 times the welfare for poor individuals.

 

In the following, we present some snippets on this

issue, based on data from:

1. ITEP Study of Corporate Income Taxes in the 1990s,

also as reported by Steven Taub, CFO.com

2. Citizens for Tax Justice Study of Corporate

Welfare, April 2002 - PDF

3. OMB Watch, Mar 2000

4. Citizens for Tax Justice

Reference Item Data/Figures (click on figures to

enlarge) Comments

2, 3 Facts on

Individual vs.

Corporate

Welfare Fact I : Spending for corporate welfare

programs outweighs

spending for low-income programs by more than

three to one: $167 billion to $51.7 billion

(source: Aid for Dependent Corporations, from the

Corporate Welfare Project and How Much Do We Spend

on Welfare?, from the Center on Budget and

Policy Priorities, FY 95 figures).

 

(Ref. 3: This year's corporate welfare figures are ~

$170 Billion)

 

Fact II: Total federal spending on a safety net for

the poor costs the average taxpayer about

$400 a year, while spending on corporate welfare

programs costs the same taxpayer about

$1400 a year. (source: CBO figures)

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2, 3 Facts on

Individual vs.

Corporate

Welfare

 

Fact III: Over 90% of the budget cuts passed by the

last Congress (1996? -ed.) cut spending for the poor

-- programs that ensure food for the needy,

housing for the homeless, job training for

the unemployed, community health care for

the sick. (source: Center on Budget and

Policy Priorities, Bearing Most of the Burden, 1996).

 

Fact IV: Only 3.9% of total federal outlays (as

of 1996? - ed.) go to programs that solely

benefit poor people.

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2, 3 Facts on

Individual vs.

Corporate

Welfare

 

Welfare programs for corporations do not

play by the same rules as welfare for people.

Welfare benefits for individuals and families are

limited

by strict eligibility requirements and time limits,

while

corporations get corporate welfare benefits regardless

 

of wealth or accountability.

Fact V: Individuals and families must demonstrate need

 

to receive benefits, while corporations with billions

of dollars in annual income remain on the federal

dole.

 

Fact VI: Most social spending is in the form of

discretionary spending, which is scrutinized in

the annual budget negotiating process in

Congress; most corporate welfare programs are in

the form of tax expenditures, which go on and

on since they are not subject to annual review

by Congress.

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1 Tax Rates of 250

Major U.S.

Corporations

1996-1998 (a) A great majority of the 250

major U.S. corporations paid

much less than the statutory

35% corporate tax

 

(b) A large number of companies

making a lot of profits actually

got tax rebates!

 

See Ref. 1 (page 11) for the

reasons why these companies

got these tax breaks

1 24 companies that

paid NO Federal

Income Tax in

1998 Note that these companies

made a total pre-tax profit of

$11.9 Billion and they got a

total tax rebate of

$1.27 billion (instead of

paying any taxes!)

1 Tax rates by

Industry

1996-1998 Note that the oil industry was

the biggest benefactor of tax

rebates during this time period,

followed by electronics, paper,

transportation, motor vehicles/

parts, pharmaceuticals

 

(other than electronics - which we

will mention in a moment, do

the other industries seem

exceedingly unsurprising?)

1 Stock options

related tax

reductions

1996-1998 Note that computer related

companies and pharmaceutical

companies were the biggest

beneficiaries of tax reductions due

to stock option awards (while

simultaneously not having to

officially report lower earnings to

Wall Street because of stock

option expensing)

 

(Disclosure: we own stock options

and will be negatively affected by

laws that require stock option

expensing)

1 Historical trend

of effective

corporate income

tax rates Trends show decrease in the

late 90s.

1 Corporate Income

taxes as a share

of total Income

Taxes collected

in the U.S. Corporate income taxes are very

low relative to total income taxes

collected.

2 Corporate taxes

relative to U.S.

GDP Corporate taxes relative to the U.S.

GDP are near multi-decade lows.

Note, as we captured in our

companion page, tax/GDP ratios

are useful in isolation but

overestimate actual tax burdens.

- Taxes on

dividends The usual argument is that corporate

dividends

are " double taxed " and that therefore this

" double-taxation " should be eliminated. Indeed, one of

 

the proposed future tax cuts is in this context (also

see

here).

 

The " double taxation " argument is in reality a myth.

As pointed out by Daniel Gross:

" ...The chief argument of those who advocate

eliminating

taxes on dividends is that they are subject to " double

 

taxation. " Shareholders pay taxes on dividends

at the rate their ordinary income is taxed. And

corporations cannot deduct dividends from

their taxable income, meaning they pay taxes on them,

too.

Does that mean that dividends are double taxed? Only

if you to the belief that corporations don't

 

pay taxes, people do. Under this theory, since a

company's

profits are ultimately distributed to owners and

shareholders in some form—dividends, profit sharing,

salaries, or capital gains—any tax on corporate

income, or any limits on the deductibility of

items from taxable income, in effect taxes the same

dollar of profits twice...

But the double-taxation argument reflects a flawed

understanding of what corporations do and why

they are formed. Corporations are distinct entities.

They are not merely passive conduits of cash. They

are legal beings, chartered by states to perform

certain

objectives. They possess all sorts of prerogatives,

rights,

and protections not afforded to individuals. That's

why

people form corporations, and that's why it

is just for corporations to pay taxes on their income.

 

As Dean Baker points out in TomPaine.com

" ...Proponents of a tax preference for dividend income

 

have pushed the notion that the taxation of dividend

income amounts to double taxation. The basis for this

claim is that corporate profits are subject to the

corporate

income tax. Since dividends are paid out of profits,

the

argument is that the personal income tax paid on

dividend

income amounts to a second tax on corporate profits.

This

logic is dubious for two reasons. First, there is a

legal and

logical distinction between the corporation as an

entity and the individual shareholders who own

the firm. Second, the tax rates currently in place

were

set with the knowledge that there was both a corporate

 

and individual income tax. This means that if there is

a moral

objection to " double taxation " then the appropriate

remedy

would also require an increase in the corporate income

tax... "

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