My friends at Citizens for Tax Justice believe that federal corporate tax burdens are too low. They also believe that the system is infected with planning opportunities that allow corporations to avoid their "fair share" of taxation. Seeing as CTJ is one of the nation’s premier progressive advocacy groups, its position is not surprising. Liberals tend to be dissatisfied with any level of taxation on wealth or capital. Without question, American corporate taxation needs reform. But CTJ has been taking a curious tactic of late. It has been discussing the tax situations of individual companies.
For example, CTJ says that in 2013, Netflix took advantage of its ability to deduct phantom costs of executive stock options in order to reduce its tax bill to zero. CTJ implies that Netflix was acting nefariously by either cheating or bending over backwards to find unwarranted loopholes. Nothing could be further from the truth. Companies routinely deduct stock options because, well, they are allowed to. What Netflix is doing is perfectly legal. In fact, CTJ notes that Facebook, Priceline, Twitter, and other companies also "take advantage" of the law. CTJ would like to see passage of the bill proposed by Sen. Carl Levin that would limit corporations’ ability to deduct stock options. But making Netflix out to be the bad guy seems unfair.
CTJ has been focusing on brand-name corporations. Last week it said that IBM paid an effective rate of only 5.8 percent on $45 billion of profit between 2008 and 2012. It says there is no reason to believe IBM did anything illegal. That CTJ says the company was acting legally implies that illegality was something worth considering. But CTJ then says that IBM was likely using accounting gimmicks to minimize its tax burdens. Yet, the real reason for IBM's "low" effective tax rate is deferral. American companies making profits overseas have little reason to bring the money home. Their keeping money overseas to escape taxation is rational. Making IBM out to be the bad guy -- which other media reports also have done -- misses the mark. Following the law is hardly a corrupt activity.