August 13, 2014
There’s no question that the U.S. corporate tax system is broken, as many CEOs would argue. The problem, however, is not only that corporate tax rates are too high — at 35% they are the highest in the world — but that many of the country’s most profitable companies don’t pay ANY corporate taxes.
USA Today reports that 20 big, profitable U.S. companies paid no taxes in the second quarter, among them Merck (MRK), General Motors (GM) and computer storage company, Seagate (STX). (See below for the full list.)
Merck, the second largest pharmaceutical company in the U.S., actually had a negative effective tax rate of 7.5% during the second quarter, which means it got a tax credit. Eight of the 20 companies were in real estate or real estate-related businesses.
“This is insanity because every day we hear people saying the corporate tax rate is a mess and that’s holding back our economy,” says Yahoo Finance Editor-in-Chief Aaron Task.
Yahoo Finance’s Henry Blodget agrees that the argument the tax system is hurting the economy is a “complete crock,” but he says the “corporate tax situation is a big problem” because companies often do whatever they can — like moving headquarters overseas AKA “corporate inversions” — just to save on taxes. “We have to change the system,” says Blodget, “because corporations are doing what anybody with the resources they have would do: minimize the taxes they pay.”
He suggests that policymakers consider the “radical idea” of eliminating corporate income taxes all together.
Steven Rattner, the former New York Times reporter turned private equity investor who led the Obama Administration’s auto industry overhaul, favors that solution.
In a May New York Times op-ed, Rattner argued that “tax avoidance” has emerged as “a full-fledged business strategy” which ultimately reduces the share of corporate profits paid in taxes. He suggests instead eliminating corporate taxes and raising the tax rates shareholders pay on capital gains and dividends, and increasing rates on the earned income of wealthy Americans.
Sources: S&P Capital IQ, USA TODAY research
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