Many Profitable Corporations Pay Little or No U.S. Income Taxes
Multinationals pay higher income tax rates abroad than in the U.S.
Six Pa.-based corporations studied paid no U.S. income taxes in at least one of last five years
HARRISBURG, PA (February 27, 2014) — A comprehensive five-year study of 288 highly profitable Fortune 500 companies finds that 111 of them, including six based in Pennsylvania, paid no federal corporate income tax in at least one of the last five years.
Overall, one-third of the corporations studied paid a U.S. tax rate of less than 10 percent over the five-year period, including 26 that paid nothing at all, according to the new report from Citizens for Tax Justice (CTJ) and the Institute on Taxation and Economic Policy (ITEP).
Six of the 16 Pennsylvania-based Fortune 500 corporations studied paid federal income taxes of zero or less in at least one year between 2008 and 2012: Allentown-based PPL (3 years); Pittsburgh-based Allegheny Technologies and PNC Financial Services Group (2 years); and King of Prussia-based UGI, Pittsburgh-based H.J. Heinz, and Allentown-based Air Products & Chemical (1 year).
Among the Pennsylvania companies, PPL and PNC paid the lowest effective federal tax rates on income over the five-year period – 3 percent and 3.9 percent, respectively. Paying rates much closer to the statutory corporate federal income tax rate of 35 percent were Hershey (31.6 percent) and King of Prussia-based Universal Health Services (31.1 percent).
“Both individual taxpayers and critical public services are put at a disadvantage when profitable Fortune 500 companies avoid paying federal income taxes,” said Sharon Ward, Director of the Pennsylvania Budget and Policy Center. “This study also shows that there are companies that deserve credit for paying closer to their fair share.”
The Pennsylvania Budget and Policy Center co-released the CTJ/ITEP report, The Sorry State of Corporate Taxes: What Fortune 500 Firms Pay (or Don’t Pay) in the USA and What They Pay Abroad — 2008–2012.
The study examines five years’ worth of data on federal income taxes paid by 288 corporations — every Fortune 500 company that was profitable each year of the study and provided sufficient, reliable information in their financial reports to allow calculation of their effective U.S. and foreign tax rates. Although the statutory corporate federal income tax rate is 35 percent, these corporations paid an average effective rate of just 19.4 percent over the past five years, barely more than half the official rate.
Over the period, the six Pennsylvania-based corporations that avoided taxes in at least one of the five years reviewed paid overall effective tax rates of 15 percent or less: PPL (3 percent), PNC (3.9 percent), Air Products and Chemicals (9.5 percent), Allegheny Technologies (9.5 percent), H.J. Heinz (13.2 percent), and UGI (15 percent).
Six other Pennsylvania-based Fortune 500 corporations paid effective federal income tax rates of 20 percent or more: Hershey (31.6 percent), Universal Health Services (31.1 percent), Pittsburgh-based PPG Industries (29.2 percent), Coraopolis-based Dick’s Sporting Goods (27.2 percent), Chesterbrook-based AmerisourceBergen (24 percent), and Philadelphia-based Comcast (24 percent).
Contrary to the myth spread by corporate lobbyists, most multinational corporations in the study paid lower U.S. taxes on their U.S. profits than they paid to foreign governments on their foreign profits.
“Corporate lobbyists incessantly claim that our corporate tax rate is too high, and that it’s not ‘competitive’ with the rest of the world,” said Robert McIntyre, Director of Citizens for Tax Justice and the report’s lead author. “Our new report shows that both of these claims are false. Most of the biggest companies aren’t paying anywhere near 35 percent of their profits in taxes and far too many aren’t paying U.S. taxes at all. Most multinationals are paying lower tax rates here in the United States than they pay on their foreign operations.”
Among the report’s national findings:
- 111 of the companies enjoyed at least one year in which their federal income tax was zero or less.
- 26 companies, including Boeing, General Electric, Priceline.com and Verizon, enjoyed negative income tax rates over the entire five-year period, despite combined pre-tax profits of $170 billion.
- Of the 125 multinational companies in this sample, two-thirds paid a lower U.S. tax rate than the rate they paid to foreign governments on their foreign profits. On average, their foreign effective tax rate was 12 percent larger than their U.S. effective rate.
- The total amount of federal income tax subsidies enjoyed by the 288 profitable corporations over the five years was $362 billion.
- Wells Fargo tops the list of corporations receiving the most in tax subsidies, getting more than $21 billion in tax breaks from the U.S. treasury from 2008 through 2012.
- Pepco Holdings had the lowest effective tax rate of all the companies in the study, at negative 33 percent over the five-year period.
- Industry tax rates varied widely, from a low of 2.9 percent for utilities to a high of 29.6 percent for healthcare companies.
- Some companies within sectors fare worse than others. For example, Time Warner Cable paid 3.9 percent over five years, while its competitor Comcast paid 24 percent.
- More than half of the federal corporate tax subsidies received by the companies in the study went to four industries: financial services, utilities, telecommunications, and oil, gas & pipelines.
“It’s a sorry situation when most Americans can rightly say, ‘I pay more in federal income taxes than General Electric, Boeing, Verizon, Pepco, Priceline, Duke Energy and 20 other big corporations, all put together!’” McIntyre said. "Right now, this nation faces important questions of how to fund pressing priorities, from education, health care, infrastructure to retirement security, that benefit most Americans. But too often, our lawmakers ignore the need to ensure we have a just tax system that raises the revenues we need.”
The report outlines a set of sensible reform options that could help revitalize the corporate tax, including ending the indefinite deferral of taxes in foreign profits and tax breaks for executive stock options.
The Sorry State of Corporate Taxes is the latest in a series of comprehensive publications on corporate taxes from Citizens for Tax Justice (CTJ) and the Institute on Taxation and Economic Policy (ITEP). It is at www.ctj.org/corporatetaxdodgers.
Citizens for Tax Justice (CTJ) is a 501(c)(4) public interest research and advocacy organization focusing on federal, state and local tax policies and their impact upon our nation (www.ctj.org).
The Institute on Taxation and Economic Policy (ITEP) is a 501(c)(3) non-profit, non-partisan research organization, based in Washington, DC, that focuses on federal and state tax policy. ITEP's mission is to inform policymakers and the public of the effects of current and proposed tax policies on tax fairness, government budgets, and sound economic policy (www.itep.org).