Washington, DC, Sept. 22, 2004--The result of recent tax policy choices is that the 2004 deficit has reached an all-time high of $422 billion dollars. The Congressional Budget Office reported this month that only 11% of the FY 2004 deficit was due to cyclical factors, while 89% of the deficit was result of federal policy decisions. Not only is the current deficit the highest it has ever been in dollar terms, but in a recent analysis, OMB Watch Staff Economist John Irons projected that the deficit will reach $5.5 trillion over the next ten years. In addition, a new study released today by the Institute on Taxation and Economic Policy (ITEP) finds that many of the country’s biggest corporations are not paying their fair share of federal income taxes.

In spite of this ominous deficit, Congress continues to reduce federal revenue. Two tax bills are currently pending that would reduce revenue even more: one extending certain provisions of the 2001 tax changes, and the FSC-ETI corporate tax bill. A major problem with tax extensions is that they are unlikely to contain any significant offsets, and therefore will have to be financed primarily by higher deficits.

The pending FSC-ETI bill will provide billions of dollars worth of tax credits for U.S. corporations for their overseas operations. The revenue used to offset the additional cuts for corporations would be better used elsewhere. It is not fiscally responsible for Congress to be extending corporate tax breaks in a time when the deficit is out of control and only projected to grow larger in the coming decade.

A report released today by Citizens for Tax Justice and the Institute on Taxation and Economic Policy (ITEP) reveals many of the country’s biggest corporations are not paying their fair share of federal income taxes to begin with. While Congress is pushing to extend tax relief for corporations, this report, "Corporate Income Taxes in the Bush Years" shows that from 2001 through 2003, many of the nation's largest and most profitable corporations paid only a fraction of taxes they owed the federal government.

The ITEP report examines the U.S. profits and federal income taxes of 275 of the nation's largest and most profitable corporations over the three-year period from 2001 to 2003. Although big corporations are supposed to pay 35 percent of their profits in taxes, these 275 paid only 17.2% in 2003. This percentage was down from 21.4 percent in 1996, and far below the 26.5 percent that a similar group of large companies paid back in 1988, soon after passage of the loophole-closing 1986 Tax Reform Act.

As the report mentions, over the 2001-03 period, the 275 companies reported almost $1.1 trillion in pretax profits in the United States. Had all of those profits been reported to the IRS and taxed at the statutory 35-percent corporate tax rate, the 275 companies would have paid $370 billion in income taxes over the three years. Instead, the companies as a group paid a three-year effective tax rate of only 18.4 percent. This means that a total of $175.2 billion in tax breaks were given to these companies over a three-year period.

As the size of the deficit demonstrates, Congress does not have sufficient funds to be passing either corporate tax breaks or the pending tax cuts without offsets. ### OMB Watch is a 501(c)(3) nonprofit organization located in Washington, D.C., and was founded in 1983 to promote government accountability and citizen participation, and to lift the veil of secrecy shrouding the White House Office of Management and Budget (OMB). For more information see www.ombwatch.org.

NOTES: OMB Watch published this analysis on September 9th, 2004; a press release can be found at http://www.ombwatch.org/budget/pdf/04_cbo_projections_final.pdf.

This report was put together by Citizens for Tax Justice and the Institute on Taxation and Economic Policy. The report can be found at http://www.ctj.org/corpfed04an.pdf.