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Huffington Post Article on GAO Report Lax on Substance, Heavy on Political Rhetoric

3 min readBy: Gerald Prante

Yesterday, Huffington Post columnist Robert Borosage posted an article in response to a GAO report on the issue of corporate taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. es. Did Borosage read the report? Who knows? But from what he wrote, one can tell that he is yet another journalist who should more carefully check his facts and limited knowledge of the topic before writing on corporate tax policy. Here’s one example of Borosage’s misunderstanding of the issue:

But in 2005, with corporate profits reaching new heights as a percentage of national income, the GAO found that over one-fourth — 28% of large corporations paid no taxes. (It defined large corporations as those with assets of at least $250 million dollars or gross receipts of at least $50 million dollars.) They can tell you how to make $50 million dollars and not pay taxes.

Anyone who has spent five minutes studying corporate tax policy knows that sales do not equate profits. A large corporation could make $50 million in sales and have $75 million in expenses and thereby pay no corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. . That large corporation didn’t “make” $50 million. It lost $25 million.

On a technical note, Borosage’s statement was also incorrect. The 28.0% figure is the wrong figure for large corporations not paying tax; that’s only large, foreign-owned corporations. 25.2% of large US corporationAn S corporation is a business entity which elects to pass business income and losses through to its shareholders. The shareholders are then responsible for paying individual income taxes on this income. Unlike subchapter C corporations, an S corporation (S corp) is not subject to the corporate income tax (CIT). s paid no tax. If you combine the US and foreign totals, it’s 25.8%.

Borosage continues:

Not surprisingly, the income collected from corporations has been declining as a percentage of GDP, with the burden transferred to your income and payroll taxA payroll tax is a tax paid on the wages and salaries of employees to finance social insurance programs like Social Security, Medicare, and unemployment insurance. Payroll taxes are social insurance taxes that comprise 24.8 percent of combined federal, state, and local government revenue, the second largest source of that combined tax revenue. es. According to a study by the Treasury Department, from 2000-2006, an average of 2.2% of GDP was collected in corporate taxes. This compares to an average of 3.4% in other industrial countries. The nonpartisan Congressional Budget Office projects that, under current law, corporate revenues will decline to 1.9% of GDP by 2017.

Borosage conveniently fails to point out that GDP includes the profits earned by businesses that are not corporations. However, these profits, like those earned by S-corps (which were analyzed in this GAO study yet not included in the figures here) and sole proprietorships, are taxed under the individual tax code. And the share of business income earned in the individual income taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S. code has grown dramatically over the past twenty years (see Slemrod’s work). Such a figure quoted by Borosage is essentially meaningless unless it is placed in the proper context. Also, Borosage doesn’t provide figures on what corporate profits are as a percentage of GDP (just that it has risen in recent years). For example, if one country’s antitrust policy made product markets more competitive (as many on the left claim), profits (and thereby taxes on those profits) may be very small as a percentage of GDP, comapred to another country whose markets were less competitive. I doubt such a thought entered Borosage’s head, however. He was more interested in taking shots at John McCain and George Bush, whose fiscal policies often deserve criticism, but really have little to do with the theme of this GAO report.

Finally, as many commenters noted, Borosage fails to point out that people own these corporations. And while capital income does tend to be disproportionately earned by those in upper-income brackets (especially looking at it from a one-year snapshot but also on a lifetime basis), it’s not as if the tax burden remitted to the government by a corporation would have merely gone into the very rich CEO’s pocket for him to buy another yacht.