While Corporate Profits Soared, Tax Bill Dropped to Zero

More than 60 percent of U.S. corporations paid no federal taxes from 1996 through 2000, when the economy surged along with corporate profits, a new report says.

The Wall Street Journal reported that the analysis of Internal Revenue Service data, conducted by the General Accounting Office, also found that about 70 percent of foreign-owned companies doing business in the U.S. paid no federal taxes during the late 1990s.

"Too many corporations are finagling ways to dodge paying Uncle Sam, despite the benefits they receive from this country," said Sen. Carl Levin, D., Mich., who requested the study along with Sen. Byron Dorgan, D., N.D. "Thwarting corporate tax dodgers will take tax reform and stronger enforcement."

The study comes at a time when corporate tax receipts as a percentage of overall federal revenue is at its lowest rate since 1983. In 2003, corporate tax receipts amounted to just 7.4 percent of total federal receipts. That’s the second-lowest rate since 1934, according to federal budget officials.

The latest GAO study on corporations seems to echo the results of a recent survey of individual taxpayers. Last year, 17 percent of Americans said that cheating on their taxes is OK versus 11 percent in 1999. The IRS estimates that 15 percent of taxpayers paid nothing in 2001, owing the government a total of $311 billion.

Tax avoidance schemes are under close scrutiny by Congress and the IRS, which launched a crackdown this year on tax cheats, big or small.

President Bush’s 2005 budget request calls for a 10 percent increase for extra enforcement staff, which will make tax abuses among corporations and the rich its top priority, IRS Commissioner Mark Everson has said. The agency is coordinating enforcement with the states, and hopes to collect from about 20,000 taxpayers.

Congress is also taking a hard line, and is looking at a newly discovered leasing maneuver that allows companies to buy up depreciation rights to public transit lines, highways and water systems.

The basic federal corporate-tax rate for big corporations is 35 percent. But many companies pay far less by taking advantage of the many credits and loopholes in the federal tax code. In the corporations’ defense, Dan Mitchell, a fellow at the Heritage Foundation, a conservative think tank, said that corporations have an obligation to shareholders to pay as little tax as they legally can.

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