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Early this month, Democratic Rep. Marcia Fudge of Warrensville Heights appeared on C-SPAN’s "Washington Journal," public affairs television program where viewers phoned in to ask her questions.
A caller who identified himself as James, an Akron small-business owner, discussed some of the tax write-offs he uses as a small businessman, and said larger businesses "game the system" by writing off things like parties, food and clothes.
Fudge agreed with him, calling for an overhaul of corporate tax policy, saying: "There are corporations in this nation, some of the biggest corporations in this nation, who do not pay taxes."
"It is not that they are cheating," Fudge continued. "It is not that they are doing something wrong. We have given them tools."
We thought examining Fudge’s tax claim would be worthwhile, since representatives of some of the nation’s biggest companies, such as Cincinnati’s Procter & Gamble, argue that Congress should be cutting business taxes.
In January testimony on behalf of the Business Roundtable, P&G CEO Robert A. McDonald told the House Ways and Means Committee that too-high corporate taxes are costing American jobs and making U.S. companies less competitive in the global marketplace.
Are some large U.S. businesses not paying taxes, as Fudge claims?
To back up her assertion, Fudge’s office cites media reports about particular companies – like General Electric and Bank of America -- that did not pay 2009 taxes as well as a July 2008 report from Congress’ Government Accountability Office that showed it’s relatively common for big companies to pay no taxes.
Between 1998 to 2005, GAO found that about 72 percent of large foreign controlled companies and 55 percent of large U.S. controlled companies reported zero tax liability for at least one year. About 57 percent of foreign controlled large companies and 42 percent of U.S. large companies paid no taxes in two or more years, and a third of the foreign companies and one quarter of their U.S. counterparts paid no taxes for at least four of those years. Just 45 percent of large U.S. companies and 28 percent of foreign companies reported a tax liability for each of the eight years. The report defined large companies as those with at least $250 million in assets, or at least $50 million in receipts
When GAO factored smaller companies into the mix, it found a higher overall proportion who didn’t pay taxes. Throughout the eight years the study examined, the overall percentage of non-tax-paying foreign and U.S. controlled companies never fell beneath 60 percent annually.
The report said that corporations may not pay U.S. income taxes for a variety of reasons, including current-year operating losses, tax credits, and multinational corporations shifting income to lower tax jurisdictions.
"Some corporations could have zero income before deducting expenses and others could have zero net income after deducting expenses, both of which could result in no tax liability," the report said.
After the GAO report was released, U.S. Chamber of Commerce Chief Economist Martin Regalia released a statement that stressed the difference between companies not having a tax liability and shirking taxes that are owed.
"The GAO report doesn’t say that businesses aren’t paying taxes they owe," Regalia’s statement said. "Rather, it says that some corporations did not have tax liabilities — in other words, they did not owe taxes. So how do corporations avoid having tax liabilities? They don’t make any profits. You can have many billions of dollars in revenue and still have R&D, labor-related and other expenses that are larger than your revenues — and therefore no ‘income’ to tax.
"In sum, the idea that there is a large pool of corporations not paying taxes that they legally owe is just incorrect," Regalia concluded.
The nation’s big business representatives don’t dispute the report’s findings, even as they stress it should not be misconstrued to mean businesses are evading taxes they owe. During her television appearance, Fudge stressed that the businesses who don’t pay taxes aren’t cheating or doing anything wrong.
Our research finds solid ground beneath her claim that some large U.S. companies don’t pay taxes. That’s why we rate her statement as True.
C-SPAN "Washington Journal" appearance by Marcia Fudge, March 1, 2011
House Ways and Means Committee testimony on Tax Reform by on behalf of the Business Roundtable by Procter & Gamble CEO Robert A. McDonald, Jan. 20, 2011
CNNMoney.com, "GE: 7,000 tax returns, $0 U.S. tax bill," by Annalyn Censky, April 16, 2010
CNN, "GE and Bank of America paid no federal taxes last year," by Jack Cafferty, April 20, 2010
U.S. Government Accountability Office, "Tax administration: comparison of the reported tax liabilities of foreign and U.S.-controlled corporations, 1998-2005," July, 2008
U.S. Chamber of Commerce statement from chief ecomomist Martin Regalia, Aug. 22, 2008
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