Fun with numbers (or Don’t believe everything you read)

August 12, 2008

I heard this story on the radio today (damn you Paul Harvey!) – Most companies in US avoid federal income taxes:

Two-thirds of U.S. corporations paid no federal income taxes between 1998 and 2005, according to a new report from Congress.

“It’s shameful that so many corporations make big profits and pay nothing to support our country,” said Sen. Byron Dorgan, D-N.D., who asked for the GAO study with Sen. Carl Levin, D-Mich.

That sounded pretty shocking to me and I thought to myself, “The Democrats are gonna run with this one”. One of John McCain’s platforms that I think actually makes sense is a cut in the corporate tax rate. But who would be in favor of a cut in tax rates for those evil corporations when two-thirds of them already pay no tax? It turns out that most of those evil corporations are LLCs which, instead of paying corporate income tax, pay individual income tax.

To make matters worse, the article then goes on to state:

About 25 percent of the U.S. corporations not paying corporate taxes were considered large corporations, meaning they had at least $250 million in assets or $50 million in receipts.

Sorry, wrong again, AP writer.

From the Tax Foundation:

Unfortunately, the AP’s account is based in part on a serious misreading of one of the report’s tables…

the actual report (Table 1, page 23) reflects that, of the 1.26 million U.S. corporations with no 2005 tax liability, just 3,565 were large. That’s 0.28%, or 89 times lower than the AP’s figure. Oops!

In fact, what the report shows is that only 25% of large U.S. corporations paid no corporate income tax in 2005. In 85% of those cases, the large corporation paid no income tax because it had zero or negative net income for 2005. No income, no income tax.

For example, in a “clever tax dodge”, American Airlines avoided income tax for 2005 by losing $862 million. General Motors lost $10.5 billion in 2005; I bet those greedy fat cats didn’t pay any corporate income tax, either.

To add insult to injury the New York Times has this little gem:

At a basic corporate tax rate of 35 percent, all the corporations covered in the study in theory owed $875 billion in federal income taxes

Uh, no. Corporations are taxed on their income not their revenue (big diff, there). To get to that $875 billion figure you have to tax their total sales at 35%. And this is in the business section!


2 Responses to “Fun with numbers (or Don’t believe everything you read)”

  1. Sandra Moore Says:


    There is no such thing as a “corporate income tax”.

    It is a tax on coporate profits!

    Individuals must pay tax on Income.

    Business corporations only pay on their PROFITS !!!

    Big Difference.

  2. John in IL Says:

    Not really, Sandra. In the accounting sense, (net) income is correct. Net income(profit) = Revenue(gross income) – Expenses.

    And thanks for stopping by. Please come again. I usually talk about hot manflesh and kittehs; if that is of any interest to you.

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