Revenue & Spending
Rating RATE Participants: Government's Largest Contractors in Corporate Tax Cut Coalition
by Scott Klinger, 4/8/2014
Reforming America's Taxes Equitably, or RATE Coalition, is a corporate lobby group made up of 29 major corporations and two trade associations. Formed last year, the RATE Coalition has been increasingly active in pressing Congress to cut corporate income tax rates from current levels. But a number of the companies involved in the coalition benefit from the very revenue stream they're seeking to shrink.
Among the RATE Coalition's members are eight corporations that were among the top 100 federal government contractors last year, including the nation's four largest military contractors. Collectively, these eight firms received more than $108 billion in federal government contracts in fiscal year 2013, nearly a quarter of all the contract dollars awarded by the U.S. government.
FY 2013 Federal
Share of Total
|Babcock & Wilcox||$2,501,458,441||0.54%|
*= Data for Boeing excludes $2 billion in FY 2013 government contracts granted to Bell Boeing Joint Project Office, a joint venture between Boeing and Textron.
Three of the RATE members received federal contracts valued at more than $100 million in fiscal 2013 (Verizon, Ford, and UPS) and five received federal contracts of lesser amounts. In all, 16 of the RATE Coalition's 29 members (55 percent) derive at least some of their profits from federal contracts.
At least one-third of the corporations lobbying for cuts to corporate tax rates are themselves vendors of the federal government, yet they are fighting hard to reduce the revenue the government has to produce and provide services.
Their shortsightedness is breathtaking: all RATE Coalition members are receiving valuable public services, without which their businesses could not succeed. Without strong schools that deliver an educated workforce, efficient transportation and communications systems, well-regulated capital markets that give investors confidence, courts that protect contracts and intellectual property, and a robust program of basic research that delivers valuable discoveries that corporations can then commercialize, America's businesses would not be what they are today.
Perhaps the most important gift that all businesses receive from the government is limited liability. It's a gift that is often taken for granted, but without it, corporations as we know them would not exist. Limited liability simply means that investors bear no responsibility for any damages caused by companies beyond the money they invested in the enterprise. It means that businesses can cause a huge mess and walk away, leaving taxpayers to pick up the cost of clean up.
When Freedom Industries spilled toxic chemicals in a Charleston, WV river in January, its owner quickly declared bankruptcy and left insurers and taxpayers to pay to restore the water. Similarly, after Lehman Brothers' bankruptcy triggered the financial collapse of 2008, the company's shareholders lost all the money they had invested in the firm's stock, but nothing more. The trillions of dollars of losses stemming from the collapse of financial markets were borne by taxpayers and others.
Yet corporate leaders continue to lobby for – and win – lucrative tax loopholes, credits, and deductions that have cut the average tax rate that corporations pay to less than 20 percent, according to The Sorry State of Corporate Taxes, a new report by Citizens for Tax Justice. In other words, corporate CEOs regularly complain that the "high" "official" U.S. tax rate of 35 percent affects their ability to compete in global markets, yet few pay this rate. (CTJ's report points out that two-thirds of America's multinational corporations report paying higher tax rates in foreign countries than they do in the United States.)
The result of this tax cutting is that corporate income taxes have steadily fallen as a source of federal government revenue. In 1952, corporate income taxes accounted for 32 percent of federal government tax receipts; last year, they accounted for less than 10 percent.
Leaders of both political parties want to lock in corporate tax revenues at today's fire-sale levels. Leaders ranging from President Barack Obama to House Ways and Means Chairman Dave Camp (R-MI) back so-called "revenue-neutral" corporate tax reform. Members of the RATE Coalition are campaigning for even deeper cuts to corporate tax rates that could, in the long-run, lock in the near-record low level of federal taxes (as share of federal tax receipts and as share of the economy) they are paying today.
Tax Dodgers Rampant in the RATE Coalition
You might expect a corporate lobby group campaigning for lower tax rates to be full of companies paying a high corporate tax rate, and some of them are. Tobacco manufacturer Altria and retailers GAP and CVS Caremark each paid more than 30 percent of their corporate income in federal taxes between 2008 and 2012, according to Citizens for Tax Justice.
But nine RATE Coalition members had effective tax rates of less than 20 percent during the five-year period ending 2012, despite being profitable in each of those years. Collectively, these nine firms reported $195.8 billion in profits between 2008 and 2012 and paid $13.1 billion in federal income taxes, an effective tax rate of just 6.7 percent over five years.
Two RATE Coalition members, Boeing and Verizon, reported negative tax rates during the period, meaning their deductions and loopholes were so abundant that they actually got refunds from the IRS of $737 million, even though they reported more than $50 billion in profits to their shareholders between 2008 and 2012, according to Citizens for Tax Justice.
Boeing is a particularly interesting case. The nation's second-largest contractor receives about a third of its revenue from federal government contracts. Yet Boeing has paid no net federal income tax over the last dozen years, despite delivering $43 billion in profits to its shareholders. During those 12 years when it paid the federal government nothing, Boeing paid its CEOs more than $188 million.
|Company||Effective Tax Rate||
|Time Warner Cable||3.9%||$463||$11,891|
Why Would Corporations with Already Low or Even Negative Tax Rates Be Members of a Coalition to Reduce Corporate Tax Rates?
Why would businesses that have so successfully gamed the corporate tax system to avoid paying U.S income taxes become a member of a lobbying organization committed to lowering corporate tax rates?
Some companies are lowering their tax bills by shifting their U.S. profits offshore using accounting gimmicks, and they avoid taxes so long as those profits remain offshore. Once those profits return to the U.S. (to be paid as dividends or used to make an acquisition, for instance), taxes come due. At present, U.S. corporations have more than $2 trillion in untaxed foreign profits.
Other businesses, like many in the RATE Coalition, reduce their tax bills by taking advantage of special deductions that reward them for purchasing new equipment. These deductions affect the period of time over which the company can write off the cost of those investments on their taxes. Historically, corporations have written off the cost of investments over the life of equipment purchased, but more recent tax rules have accelerated those deductions, allowing corporations to deduct more of the purchase price immediately. In effect, this shifts their tax bills years into the future.
Corporations create accounts reflecting the income tax bills they will owe in the future. They calculate their future obligation using the current tax rate in force at the time. Therefore, if the RATE Coalition is successful in getting Congress to slash corporate income tax rates, the amounts that corporations are holding in reserve to pay their tax bills one day in the future will also be slashed, sending billions of dollars of tax windfalls straight to the bottom line and into executives' pockets through increased bonuses.
Now Is Not the Time to Cut Corporate Tax Rates. Now Is the Time to Close Loopholes and Invest in America
America's corporations are delivering record profits. The stock market is setting new all-time highs. And corporate CEO pay is soaring, thanks to strong stock market growth last year. While corporate profits as a share of the economy have never been higher, corporate taxes as a share of the economy have seldom been lower.
Because corporations are not paying their fair share toward the costs of public structures upon which they depend, federal, state, and local government budgets are getting squeezed and public services are suffering from a sustained period of disinvestment. In our recent report, The Disappearing Corporate Tax Base, we found federal revenue sharing to states (adjusted for inflation) for things like education, environmental protection, and infrastructure spending fell 29.8 percent between 2008 and last year as a result of the end of federal stimulus spending and the imposition of mandatory spending caps under the Budget Control Act of 2011. Between the 2010 peak of stimulus aid and 2013, federal education funding to states declined nearly 40 percent, even as school enrollments continued to grow. As a result, two-thirds of the states provided less funding per pupil for the 2013-2014 school year than they did in 2007, according to an analysis prepared by the Center on Budget and Policy Priorities.
Those who have done well in America should do right by America. This is especially true for corporations that depend upon publicly funded government contracts for their business success. Corporations, like those involved in the RATE Coalition, that use their political muscle to lower the taxes they pay to support public services are shortsightedly undermining the very public structures that ensure we have a free and democratic country in which every American can succeed and in which businesses can continue to thrive.
Methodology Notes: Government contract data was drawn from USASpending.gov, the federal government's budget transparency website. Data was collected on Jan. 28, 2014. All company-specific tax information comes from The Sorry State of Corporate Taxes, a new report from Citizens for Tax Justice.
Boeing CEO pay data comes from company proxy statements filed annually with the Securities and Exchange Commission. Total compensation data used includes salary, bonus, non-equity awards, LTIPs, other compensation (perks), value of stock options exercised, and value of restricted stock vested. New stock options and restricted stock awards were not included in the calculations.