Much has been made of the fact that the U.S. corporate tax rate is exceptionally high. those who pay taxes apy 50 percent higher than the average rate in other industrialized countries. But not much has been said about why the U.S. collects so little of this potential revenue. Recently economists have begun to focus on this trend.
More than 40 percent of all corporations had losses at some point between 1982 and 2005, reported Peter Merrill of PricewaterhouseCoopers. When they post losses, they don't pay corporate income tax.
More than 40 percent of all corporations had losses at some point between 1982 and 2005, reported Peter Merrill of PricewaterhouseCoopers. When they post losses, they don't pay corporate income tax.
The Congressional Budget Office notes in its monthly budget outlook that the dramatic fall in corporate profits, combined with tax breaks designed to offset the burden of the economic recession, will drive corporate tax revenues down by more than 50 percent this year, to just $139 billion.
However, even if corporations were not taking losses, the federal government would still face a shrinking tax base due to changes in the structure of U.S. businesses.
Like many countries, the United States subjects businesses that incorporate to two levels of taxes -- first at the corporate level, when the income is earned. The second is the individual level, when the company pays dividends to shareholders.
But the government doesn't impose corporate income taxes on partnerships, S-corporations (corporations with a small number of shareholders) and other "pass through" entities, such as regulated investment companies and real estate investment trusts. Instead, the U.S. taxes only the owners or partners on their share of taxable income that the entity has "passed through."
Since companies can essentially choose their form of taxation, largely through relatively permissive federal and state tax laws, it's no wonder that the U.S. has one of the largest shares of income earned in non-corporate form. As the Treasury Department reported, "sixty-six percent of the U.S. businesses reporting profits of $1 million or more were not incorporated."
Only one in three US corporations pay corporate income taxes because of generous tax breaks and losses. Some of the largest US corporations such as Microsoft and Cisco Systems pay no corporate income tax at all. Many US corporations have off shored their corporate HQ to avoid paying corporate income tax, yet these same companies compete for federal contract dollars.
See the entire article at http://www.politicsdaily.com/2009/10/12/corporate-tax-laws-put-obama-in-a-bind/
source: http://www.cbpp.org/cms/index.cfm?fa=view&id=784
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