Last month I blogged about a July GAO report that studied the percentage of companies that reported little or no tax liability from 1998 through 2005. While I think the report itself is very telling, I also chastised Sens. Byron Dorgan (D-ND) and Carl Levin (D-MI) a bit (well, really just Levin) for jumping to the conclusion that companies were intentionally cheating on their taxes. Now I wasn't trying to defend corporations (I think most of them cheat bend the rules at just about every opportunity they get) and the work Sen. Levin has done in this area has been critical. He's been a leader on international tax issues that most citizens, much less public officials, could care less about. But the GAO report didn't show that companies were intentionally cheating. Never fear Sen. Levin - GAO has come to the rescue. They released another report in August on corporate taxation in which they studied the average effective tax rates that U.S.-based companies pay on their income earned inside and outside the United States, as well as trends in where these companies' business activity is located. From the summary: The average U.S. effective tax rate on the domestic income of large corporations with positive domestic income in 2004 was an estimated 25.2 percent. There was considerable variation in tax rates across these taxpayers. The average U.S. effective tax rate on the foreign-source income of these large corporations was around 4 percent, reflecting the effects of both the foreign tax credit and tax deferral on this type of income. Nothing necessarily shady going on here yet, but it shows a huge incentive, on average, for corporations to classify income as "foreign" rather than domestic. But I think further down are the results that Sen. Levin was looking for back in August. From the new GAO report: Reporting of the geographic sources of income is susceptible to manipulation for tax planning purposes and appears to be influenced by differences in tax rates across countries. Most of the countries studied with relatively low effective tax rates have income shares significantly larger than their shares of the business measures least likely to be affected by income shifting practices: physical assets, compensation, and employment. The opposite relationship holds for most of the high tax countries studied. What this means is that companies move income to jurisdictions where they will pay the least taxes on that income, even when those jurisdictions have a disproportionately small amount of business activity from that company in comparison to its income. Sen. Max Baucus (D-MT) and Charles Grassley (R-IA), the chairman and ranking member of the Senate Finance Committee, released a statement about this new report, where Baucus in particular criticized companies who manipulate the tax code to avoid paying their fair share. I wonder if Sen. Levin got that press release? I think he might be interested in it. One-Page Summary of GAO Report Full Report: U.S. Multinational Corporations: Effective Tax Rates Are Correlated with Where Income Is Reported