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When Innumerate Reporters Attack!

1 min readBy: Josh Barro

The GAO has a report out today on corporations with zero 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. liability. The upshot of the AP's digest of the report is that corporations pay no taxes while their executives dine on grilled human flesh with béarnaise sauce, or something.

Unfortunately, the AP's account is based in part on a serious misreading of one of the report's tables. The AP notes:

About 25 percent of the U.S. corporations not paying corporate taxes [in 2005] were considered large corporations, meaning they had at least $250 million in assets or $50 million in receipts.

However, the actual report (Table 1, page 23) reflects that, of the 1.26 million U.S. corporations with no 2005 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. 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.

See more on corporate income taxes.